OKX Founder Star Xu Blames Binance's "Leverage Loop" for October 10 Crypto Flash Crash

OKX Founder Star Xu Blames Binance's "Leverage Loop" for October 10 Crypto Flash Crash

Star Xu's Public Critique of Binance

OKX founder Star Xu (Mingxing Xu) posted a detailed thread on January 31, 2026, attributing the catastrophic cryptocurrency market collapse on October 10, 2025, to Binance's internal practices rather than external factors. Xu described the event as a "man-made crisis" driven by Binance's aggressive pursuit of market dominance, particularly through integration and promotion of the synthetic stablecoin USDe.

Binance's USDe Integration and Marketing Campaign

Xu stated that the problems began when Binance integrated USDe—an external synthetic dollar—into its core financial systems. Binance launched a heavy marketing campaign offering 12% APY for holding USDe, positioning it as a superior alternative to established stablecoins like USDT and USDC. Critically, Binance allowed USDe to serve as collateral for high-leverage futures and margin trading positions, treating it equivalently to cash despite its underlying complexity.

The "Leverage Loop" Mechanism

Xu explained that Binance's system created a dangerous recursive cycle: users borrowed USDT against USDe collateral, then used the borrowed USDT to purchase more USDe, repeating the process to amplify leveraged returns to 70% or higher. This loop inflated hidden debt across the platform, creating a bubble invisible to most participants. The structure turned USDe into a high-risk synthetic asset disguised as a stable, yield-bearing one.

Trigger and Chain Reaction

By October 10, 2025, Binance's internal market had become severely over-leveraged. When a large institutional position was liquidated, the system was forced to sell massive amounts of USDe simultaneously. Binance's internal price oracle lagged during the sharp downturn, causing USDe to depeg to $0.60 on the exchange while remaining stable elsewhere. This triggered $20 billion in cascading liquidations, wiping out traders who believed their collateral was secure.

Xu's Assessment of Binance's Responsibility

Xu argued that Binance, as the world's largest exchange, failed to prioritize market stability over aggressive user acquisition and short-term yield incentives. He emphasized that allowing "short-term yield games" on a platform of Binance's scale created systemic risk for the entire crypto market. He anticipated backlash from Binance supporters but maintained that highlighting these tactics is essential for industry safety.

Market Impact on Regular Users

For everyday crypto participants, the October 10 event meant sudden, severe losses even on positions considered low-risk. Users holding leveraged positions or using USDe as collateral faced automatic liquidations when the internal depeg occurred, often without time to react. Many lost entire portfolios in minutes due to cascading margin calls, while spot holders in cold storage remained unaffected. The crash highlighted how centralized exchange decisions can spill over to retail traders, regardless of their personal risk management.

Broader Implications for Crypto Markets

Xu's analysis points to a structural vulnerability: when a dominant exchange promotes high-yield products backed by complex synthetics and allows recursive leverage, it can create invisible systemic debt that detonates under pressure. This event exposed the dangers of treating synthetic assets as cash-equivalent collateral and relying on internal oracles during volatility. It underscores the need for better risk isolation between platforms and clearer disclosures about collateral stability.

Lessons for DeFi Users

The incident reinforces the value of self-custody for core holdings—users in cold storage experienced no direct impact. It also highlights risks in centralized platforms offering high yields through leverage loops. In contrast, Solana-based DeFi protocols with transparent onchain mechanics and lower leverage caps showed greater resilience during the same period.

Star Xu's statement serves as a public warning about exchange-driven systemic risks, urging the industry to prioritize stability over aggressive growth tactics. As regulators and users evaluate the fallout, this event may accelerate calls for stricter collateral standards and independent price feeds across major platforms.