OKX Founder Blames Yield Campaigns for Massive Crypto Crash
Nearly four months after cryptocurrency’s record October 10th flash crash wiped out leveraged positions across the market, the industry is still debating the precise circumstances surrounding the event. This debate intensified dramatically on Saturday as Star Xu, founder and CEO of OKX, asserted that the crash was neither complex nor accidental, but rather a consequence of irresponsible yield campaigns that compelled traders into leverage loops they did not fully comprehend. On October 10th, President Trump’s fresh tariff escalation on China triggered a reaction in global markets, impacting cryptocurrency specifically at a critical juncture. With substantial leveraged positions already in place, the initial market downturn quickly escalated into a widespread liquidation event, resulting in approximately $19.16 billion in liquidations, including roughly $16 billion stemming from long bets. Star’s primary argument centered on USDe, a yield-bearing token issued by Ethena. He described USDe as akin to a tokenized hedge fund strategy, rather than a standard stablecoin. It was designed to generate yields through trading and hedging mechanisms, with those yields then returned to holders.
The core of Xu’s argument is that the market’s microstructure fundamentally altered following the crash, and that many industry participants now believe the subsequent damage was more severe than the fallout from the FTX collapse. Since the October 10th event, extensive discussion has unfolded regarding the factors that contributed to the crash and how to prevent similar occurrences in the future. It’s increasingly evident that the root causes are not ambiguous. Star contends that the risk began when traders were encouraged to treat USDe as a cash equivalent. In his perspective, users were incentivized to swap stablecoins into USDe to acquire attractive yields, then utilize USDe as collateral to borrow additional stablecoins, convert those stablecoins back into USDe, and repeatedly repeat this cycle – effectively creating a self-feeding leverage machine that masked the underlying risks. “From a user’s perspective, trading with USDe appeared no different from trading with traditional stablecoins—while the actual risk profile was materially higher,” he stated.
When volatility surged, Star indicated that the established structure would not require a significant trigger to unwind. He asserted that the cascading liquidations actively amplified a selloff, transforming it into a widespread wipeout, leaving lasting damage across various exchanges and users. Initial data shows that BTC began to decline approximately 30 minutes before the USDe depeg, which corroborates the earlier assertion: the initial market shock was not necessarily a catastrophic event, but rather a rapid withdrawal of liquidity. Absent the leverage created by USDe, the market likely would have stabilized at that point. The cascading liquidations were not inevitable – they were, in fact, amplified by pre-existing structural leverage, as previously explained.
Not everyone accepted Star’s claims. Haseeb Qureshi, a partner at Dragonfly, dubbed Star’s narrative “ridiculous,” arguing that it forces a simplistic narrative onto an event that doesn’t fit that model. He posited that the crash didn’t unfold like a conventional stablecoin blowup that spreads uniformly across the market. If a single token failure drove the day’s events, he said, the stress would have manifested broadly and in sync across exchanges. The liquidations stemmed from a reflexive cycle: forced selling drove prices lower, triggering further forced selling with few natural buyers stepping in during the ensuing chaos. Binance’s response was that the October 10th flash crash was a result of a macro-driven selloff colliding with heavy leverage and vanishing liquidity, and they rejected claims of a core trading-system failure, as CoinDesk reported.
Later Friday, CZ (Changpeng Zhao), Binance’s founder, quote-tweeted Qureshi with a sharper line aimed at motive as much as mechanics: “Dragonfly is/was one of the largest investors of OKX,” CZ wrote, adding, “Data speaks. Time doesn’t match. Good to see people understanding facts.” Star, however, swiftly rejected CZ’s characterization of Dragonfly’s relationship with OKX. “Dragonfly has never been an investor in OKX,” he wrote, adding, that OKX invested in Dragonfly before Qureshi joined the firm, and that a partner’s previous fund, not Dragonfly, had invested in OKX. He further stated the details are “distinct and easily verifiable,” and he would not engage further. It’s clear that not everyone subscribes to the notion of a single, identifiable “villain,” with several market watchers arguing the selloff was broader and driven by excessive leverage and waning underlying demand rather than by any one platform or product. Seraphim Czecker, former head of growth at Ethena Labs, stated on X that “The markets crashed because the industry was overlevered alts and macro revealed that there was no sustainable organic bid for it.”
