Understanding the Impact of Automated De-Leveraging on October 10 Crypto Crash

On October 10, 2025, the cryptocurrency market experienced a significant crash, leading to approximately $19 billion in liquidations within a single day. A key factor in this sudden downturn was a process known as Automated De-Leveraging (ADL). This article explores what ADL is and how it contributed to the unprecedented chaos in the crypto market.

Key Takeaways

On October 10, 2025, the cryptocurrency market lost about $19 billion in liquidations due to Automated De-Leveraging (ADL).
ADL is a measure used by exchanges to maintain solvency at the cost of traders’ profits during market turmoil.
The market crash followed unexpected news regarding U.S. tariffs on Chinese goods announced by Donald Trump.
Increased criticism of exchanges arose due to the lack of transparency surrounding ADL and the handling of liquidations.
The events of October 10 exposed vulnerabilities in the crypto market and raised questions about insider trading.

Automated de-leveraging was at the core of crypto bloodbath

The Black Friday Incident

On October 10, Donald Trump declared that the U.S. would impose 100% tariffs on goods from China, effective November 1, 2025. This announcement struck a chord, especially since Trump altered his previous stance, briefly stating, “China will be fine,” without elaboration. Following this revelation, the White House confirmed that Trump and Chinese President Xi Jinping were set to meet for trade negotiations on October 14.

Meanwhile, unbeknownst to the traders, the crypto market witnessed one of its most turbulent events in history. Bitcoin and Ether suffered declines of 17% and 20%, respectively, while XRP plummeted by 60%. Solana fell by 38%, and various smaller cryptocurrencies faced near-total collapse, contributing to a staggering $670 billion loss in market value. The events of October 10 resulted in a massive wave of liquidations in leveraged positions, cumulatively amounting to $19 billion.

If you think the events of the last 48 hours were coincidental – think again:

The crypto sell-off began right after the U.S. stock market closed on a Friday, a time when the Asian and European markets were still asleep.

Mysterious price discrepancies occurred among oracles, contributing to the sell-off.
— Ran Neuner (@cryptomanran) October 12, 2025

The dramatic market plunge led to various discussions within the crypto community regarding sudden de-pegging of assets, surging fees, and atypical price fluctuations. Many exchanges went offline precisely when prices dipped, preventing traders from capitalizing on potential buying opportunities. Such events sparked scrutiny and accusations of suspicious practices.

Regulators should investigate the individual who opened $1 billion worth of short positions before your friend's Trump announcements and the mass crypto sell-off, Kris.
It's likely that the Trump family profited immensely from shorting the crypto market.
— Georman 🇬🇷 (@GeormanZ) October 11, 2025

The scale of short positions, particularly those established close to Trump’s announcement, raised questions about possible insider trading.

What is Automated De-Leveraging (ADL)?

Automated De-Leveraging (ADL) emerged as a contributing element to the extensive liquidations of leveraged positions. ADL is a measure employed by exchanges to maintain solvency, often at the cost of traders' profits.

When an exchange faces a deficit during a market imbalance—where there are not enough long positions to settle short positions—it may resort to liquidating profitable leveraged positions. In such scenarios, the exchange seeks to provide crucial liquidity while leaving traders who made successful trades (such as short sellers during this crisis) with losses.

ADL is utilized only when conventional liquidation methods or other protective measures like insurance funds are insufficient. Extreme conditions arise when many long positions are liquidated, but no new long positions enter the market, preventing short traders from receiving payouts. In these situations, exchanges may deplete their insurance funds and ultimately resort to force-closing winning short positions through ADL.

The criteria for determining which positions to close can differ across exchanges. According to Doug Colkitt, founder of Ambient Finance, exchanges generally consider factors like potential profits, leverage size, and order volume. “The biggest, most profitable whales get sent home first,” Colkitt emphasizes.

The Role of ADL in the October 10 Crash

During substantial market sell-offs, long positions are typically not opened in large numbers. Given the scale of the sell-off on October 10, the situation escalated dramatically.

Despite the straightforward nature of ADL, many in the trading community expressed dissatisfaction over its opaque execution. Questions remain about the size of the funds retained by exchanges and the criteria for when they opt to sacrifice user interests for solvency.

ADL significantly heightened the overall liquidation volume. However, quantifying its specific impact remains challenging due to the multifaceted reasons behind the market turmoil, including exchange outages and oracle errors.

You can't control the narrative anymore.

You prevented everyone from closing their shorts.

You prevented everyone from buying the dip or going long.

Binance achieved favorable positions ahead of others.
This pattern is not new.
The damage control measures have proven ineffective.
— Turtle (𝔦, 𝔦) (@turtleonchain) October 11, 2025

Several sources claimed that Binance was among the least effective exchanges during the chaos of October 10. The platform responded by announcing compensation airdrops. Notably, of the $19 billion liquidated, $10 billion occurred on Hyperliquid. Its founder, Jeff Yan, defended his exchange on X, stating that ADL was essential for maintaining its solvency and operational uptime, both of which were achieved.

In summary, regardless of which entity played a larger role in the market crash, the events of October 10 illuminated various weaknesses within the crypto ecosystem. Consequently, the term "automated de-leveraging" has become a crucial concept for many traders.