Market Crash Inside Story! Wintermute Founder: $30 Billion Liquidation Requires Circuit Breaker Mechanism

Wintermute founder and CEO Evgeny Gaevoy stated that the trigger for the market crash on October 11 seems to be news related to Trump, with public statistics showing about 19 billion dollars cleared. However, due to Binance not fully disclosing the data, the actual figure may be between 25 billion and 30 billion dollars. He called for exchanges to introduce circuit breakers and predicted that there would be no altcoin market in the short term.

Market Crash Day: An Hour of Complete Chaos

(Source: CoinMarketCap)

Evgeny Gaevoy stated that the trigger seems to be yet another series of news related to Trump, which gradually led to the largest liquidation event in the history of cryptocurrency. That day was extremely unusual for everyone—not only for ordinary traders but also for market makers. Within an hour, the market was completely out of order.

Public statistics show that approximately 19 billion USD was liquidated that day, but since Binance has not fully disclosed the data (the system can only display a liquidation event once per second), the actual figure could be much larger, likely between 25 to 30 billion USD. This means that the recent market crash was more than five times the size of the previous second-largest liquidation event.

Gaevoy believes this is the result of a combination of multiple factors. On one hand, there is indeed more leverage in the system; on the other hand, the market has more types of tokens, more perpetual contract products, and larger platforms to trade these perpetual contracts. Looking back three to four years ago, there were simply not this many perpetual contract products with huge open interest and hidden risks of a major collapse. In terms of market maturity, although the overall situation is indeed more complete and sophisticated than in the past, this development has also given rise to many problems.

It is still unclear who exactly “liquidated” and who suffered the largest losses, but Gaevoy suspects that many institutions with severe losses were actually employing long-short hedging strategies. For example, they might short Bitcoin while going long on certain altcoins, thinking this would hedge their risks, but they ended up getting “slapped in the face” by the ADL mechanism.

Moreover, when the market experiences extreme declines, various trading paths often get stuck. This is especially troublesome for market makers. For example, you buy on Binance and sell on another CEX, only to find that your stablecoins on the latter are increasing, while you have taken on a batch of tokens on Binance—but at this moment, withdrawals on both sides are completely blocked, making it impossible to transfer assets. Therefore, when people say “market makers exit the market and are unwilling to provide liquidity,” it is often not “unwilling,” but rather “simply unable to.”

ADL mechanism chaos and opacity spark controversy

ADL (Auto-Deleveraging) is essentially the “last line of defense” mechanism for the exchange. Generally, when the margin for your perpetual contract position is insufficient, the exchange will directly liquidate your position in the market; if the liquidation is unsuccessful, the losses should be borne by the insurance fund. The ADL mechanism is typically rarely triggered, and many exchanges have not used it for several years.

In extreme situations, such as a massive drop like 1011 and a series of liquidations, if forced liquidations continue through the order book, the price could potentially drop to “zero”, leading the entire exchange into insolvency, while short sellers would make huge profits. Therefore, the exchange will attempt to use ADL to forcibly offset part of the short positions, which is akin to artificially matching shorts with the liquidated longs, creating a kind of “virtual offset” to prevent a complete collapse of the price.

In theory, this is an “elegant” solution, but the premise is that execution must be orderly, which this time was obviously very chaotic. The biggest problem is – how is the execution price of ADL determined? This time, many institutions had their positions liquidated at extremely unreasonable prices. Taking Wintermute as an example, some ADL prices were completely illogical; the market price was at $1, while their short positions were forcibly liquidated by the system at $5. This is simply not hedging, it can only result in instant losses.

Gaevoy believes that if there is an “ADL exemption privilege”, the exchange must be open and transparent, and investors need to know which open contracts enjoy the ADL exemption privilege, otherwise it will create a detrimental market structure. In addition, some exchanges have implemented market maker liquidity protection programs, which allow market makers to take over positions that are about to be liquidated, bypassing the insurance fund and ADL. However, on mainstream platforms that have encountered large-scale liquidations this time, such programs are collectively absent.

The market needs a circuit breaker mechanism to prevent extreme fluctuations

Gaevoy believes that the crypto market should introduce circuit breakers. This feature is absent in all centralized exchanges but should indeed exist. Especially for some stable assets or mainstream tokens, when you see it depeg to $0.6, trading should be paused or switched to auction mode, and it should not be allowed to fall endlessly.

In traditional financial markets, almost every exchange—whether for stocks, futures, or commodities—has a circuit breaker mechanism. It prevents the underlying asset from plummeting too much in a short period, and the system automatically suspends trading or enters a bidding mode. However, in the crypto market, no exchange has such a mechanism. If there were a circuit breaker mechanism, it could actually protect many retail investors from being continuously liquidated.

Of course, if only one exchange implements circuit breakers, and Binance does not, would that be useful? After all, a lot of price discovery actually takes place on Binance. This means that even if CEX stops trading, the coin price will continue to fluctuate on other platforms (including on-chain markets). Therefore, if only a single exchange adopts the circuit breaker mechanism, the effect will be limited. To be truly effective, most exchanges must adopt it in coordination.

Market Forecast: Liquidity Concentrates on BTC ETH SOL

Gaevoy believes that the main impact over the next few months will be: sectors outside of the majors will be affected, as this liquidation was mainly concentrated on altcoins. There are now many more altcoins and meme coins in the market compared to four years ago, and investors have less money and are more cautious, so the market enthusiasm for altcoins will clearly decline. There will not be a major “altcoin season” in the short term.

Interestingly, Bitcoin, Ethereum, and even Solana have performed quite steadily this time. For example, Cosmos (ATOM) once dropped by 99.9%, while BTC and ETH had a maximum drop of only 15%, which is very mild. Bitcoin is now an institutional-grade asset, with ETFs, support from strategies, and infrastructure like CME futures. Ethereum is basically close to this status, and Solana is also getting closer.

This is actually a positive signal, indicating that some mainstream assets are now “safe to hold long-term”. The more ETFs there are and the wider the access, the more limited their volatility will be, which also means you can hold BTC, ETH, or even SOL with greater confidence and higher leverage. In the future, we will see more and more leverage and liquidity concentrating on these assets.

Gaevoy also clarified that Wintermute has almost always been net long. They have a venture capital department, invested in many projects, and hold a large amount of core assets such as BTC, ETH, HYPE, and SOL. In terms of risk management, long positions do not exceed 25% of net assets, and no more than 35% of net assets will be placed on a single platform.