The Funding: Crypto VCs unpack the largest liquidation event in history — and what’s next
Crypto VCs analyzed the historic $20 billion liquidation event, attributing it to excessive leverage and weak infrastructure, and suggested fixes like better oracles.Summary
The October 10 crypto crash, resulting in over $20 billion in liquidations, was deemed the industry's largest liquidation event, exposing fragile market structure driven by record high leverage rather than macro headlines. Investors noted that liquidity evaporated on exchanges like Binance, triggering forced liquidations across venues referencing its prices. While losses hit traders and market makers, systemic contagion is expected to be less severe than past collapses like FTX or Terra/Luna. Decentralized finance (DeFi) protocols, however, performed robustly, indicating maturation in that sector.
VCs identified key structural fixes needed, primarily urging less leverage, stronger price oracles drawing from multiple venues, smarter liquidation engines that unwind positions gradually, and greater transparency to reveal hidden risks. They largely favor self-regulation over strict oversight, suggesting that provable, real-time audits of centralized finance (CeFi) reserves could be more effective than regulation.
Looking ahead, a cautious recovery is anticipated as liquidity rebuilds. Bitcoin and Ether showed resilience due to institutional long-term holding, while altcoins suffered most. Some VCs view the event as a reminder to focus on durable assets, while others, citing CeFi's failure, plan to move more aggressively into DeFi.
(Source：The Block)