- OKX and Binance figureheads and supporters clashed on social media as an exposé pinned the latter as the culprit for the deep liquidations during the 10/10 flash crash.
Star Xu, Founder and CEO of OKX, has dropped a bombshell on the 10/10 (October 10) crypto flash crash last year, as Bitcoin (BTC) and altcoins braced for multibillion-dollar liquidations this weekend. The exposé, pinning the blame once more on Binance, put the crypto exchange co-founded by Changpeng “CZ” Zhao on the defensive.
What OKX CEO Star Xu Exposed
Star didn’t mince words in a post on Saturday. He fired up Crypto Twitter (CT) with allegations that the 10/10 event was the result of “irresponsible marketing campaigns by certain companies.” The OKX boss highlighted that it was no accident.
The USDe Factor
The lead of one of the world’s largest crypto exchanges revealed that it all started when Binance launched a temporary user-acquisition campaign with an enticing 12% annual percentage yield (APY) on Ethena’s USDe synthetic stablecoin. It also allowed the token to be used as collateral without limitations, in the same vein as Tether’s USDT and Circle’s USDC.
Unlike regular stablecoins like USDT and USDC, which maintain their 1:1 peg to the US dollar through cash reserves or short-term Treasury securities, USDe employs delta hedging in crypto and futures markets to sustain its 1:1 peg. Its design technically makes it a tokenized hedge fund product, carrying the same hedge fund-level risk.
Star alleged that Binance encouraged its users to convert their USDT and USDC into USDe without explaining the inherent risks of USDe. As a result, customers who had an impression that USDe was no different from the said stablecoins took the bait of the higher yield.
What’s worse, some users amplified the risks by creating a leverage loop when they used their converted USDT or USDC as collateral to borrow USDT. Then, they cycled the borrowed tokens back to USDe, and so on.
Poor Risk Management Amplifying the Liquidations
By the time market volatility struck on 10/10, as the crypto market crashed due to US President Donald Trump’s aggressive tariffs on China, USDe depegged rapidly. It exposed Binance’s poor risk management as the issue leaked to Wrapped Ethereum (WETH) and Binance Staked SOL (BNSOL). Star noted that some tokens even traded briefly at near-zero levels in the immediate aftermath of the incident.
Star clarified that he was merely addressing the root cause of the issue and not pinning the blame on Binance. It’s to raise awareness among members of the crypto community and to create measures to prevent an event of such magnitude from happening again.
What Binance Said
Binance immediately went on damage control as Star’s accounts on the 10/10 event fueled a debate within the crypto community. The world’s largest crypto exchange claimed the incident was mainly due to a macro shock that cascaded into a chain of liquidations.
The company attributed the event to highly leveraged positions, market makers’ risk controls thinning liquidity, and Ethereum (ETH) network congestion delaying transactions. Additionally, it pointed out that the problem was not crypto-specific since even the Nasdaq and S&P 500 bled with six-month-high single-day drops.
Some popular crypto personalities took Binance’s side, and its former CEO, CZ, even resorted to pulling up Dragonfly Capital’s recent social media post to negate Star’s claims. The tweet in question had Haseeb Qureshi, Managing Partner at Dragonfly, calling Star’s statements “candidly ridiculous.” CZ emphasized that, despite being one of OKX’s largest investors, Dragonfly understood the facts.
Star Xu’s Rebuttal
With emotions seemingly running high as the two heavyweights clashed, alongside their supporters, Star tried to quell the tension, saying he didn’t like debate, especially from close-minded people. Meanwhile, he acknowledged the facts in CZ’s argument, but insisted on his prior points.
The OKX CEO admitted that Bitcoin indeed began its dip 30 minutes before the USDe depeg. However, he firmly stated that the USDe leverage loop, a structural leverage, prevented the market from immediately stabilizing after the BTC crash.
Along the way, Star corrected CZ. He said OKX invested in Dragonfly, not the other way around. It was also before Qureshi joined the firm. Furthermore, one partner’s previous fund (not Dragonfly) invested in OKX.
Star refused to continue the extended debate at that point.
