Author: Lacie

Around 10/10 11:47 PM on Truth Social, about an hour after Trump accused China of "hostile" rare earth export controls, the market briefly stabilized. I watched the $WLFI spike and saw a potential for an oversold rebound, so I opened a 3x all-in long position at 0.14 and transferred some funds into the contract as margin.

10/11 03:57 I woke up inexplicably after taking melatonin to sleep. I checked my account and saw that the 45% profit seemed to be going pretty steadily. After some hesitation, I only set a take-profit of 0.165 and then fell into a deep sleep.

10/11 05:20 After Trump threatened to impose 100% tariffs on China, the market panicked and fell, and many copycat stocks fell by -80%+. Unfortunately, the alarm did not wake me up;

10/11 07:34 I woke up very early today. Since I was still on the original contract account interface when I opened my phone, I saw that my position was gone, but I was still hoping that my take-profit order might have been triggered. It wasn't until I switched to the total assets interface and saw the remaining balance that I realized it. My mind went blank for a few seconds, and then I gave a wry smile. This was the first time I had a real margin call, as I lacked experience in position management and risk control.

10/11 09:13 Group members gradually woke up, and there were cries of grief in various groups. The media also began to push reports on this black swan event. I, who had just graduated and started working in the industry three months ago, witnessed the largest liquidation event in the history of cryptocurrency. The scale was almost 10 times that of the plunge caused by the COVID-19 epidemic in March 2020. More than 1.66 million people on the entire network had the same unfortunate experience as me. I seemed to understand a little bit of what everyone often said, "survive."

10/11 11:50 After my margin call, I was depressed and scrolling through Twitter. Many teachers on Twitter were discussing the outrageous Tiandi Pin and USDe decoupling of CEX. Out of curiosity, I compared CEX and on-chain: CEX's pin was extremely deep, and many people wanted to buy at the bottom but couldn't buy due to the downtime; while the price fluctuations on-chain were not that exaggerated, and transactions could be completed relatively smoothly.

CEX Plug-ins and Downtime: The Vulnerability of Single-Point Liquidity Black Holes

My positions were not only blown up by extreme market conditions, but also by the fragility of CEX itself:

Order book failure and limited market maker (MM) funds: Market makers (MMs) provide the majority of liquidity on CEXs. Under normal market conditions, market makers allocate limited funds based on the importance of the project. Tier 0/Tier 1 large-cap cryptocurrencies receive the most funding, while Tier 2/3 smaller cryptocurrencies receive minimal order book depth. In extreme market conditions, market makers face capital constraints and prioritize ensuring the smooth operation of large-cap cryptocurrencies like BTC and ETH. They even divert liquidity originally allocated to smaller cryptocurrencies to support top-tier assets, failing to hedge tail risk. Consequently, buy orders for small-cap altcoins are virtually wiped out. Consequently, when a massive sell order floods the market, there are insufficient counterparties on the order book to cover it, causing prices to plummet to extreme lows.

API downtime and inadequate risk control measures: CEXs rely on a single technology stack to handle all transactions, making them susceptible to single points of failure under high-concurrency requests. During extreme market conditions, the influx of trading and clearing requests resulted in many CEX API errors, order delays, and brief downtime. Users were unable to place orders to buy at the bottom or cancel orders to stop losses, leaving them helpless to intervene as prices plummeted. This not only exacerbated panic, but also meant that potential buyers at certain price points were unable to materialize, exacerbating the plunge.

High leverage and cross-margining lead to forced liquidations: The leverage and cross-margining mechanisms offered by CEXs can amplify market volatility in extreme market conditions. When USDe was used as collateral on CEXs, its price plummeted 35% to $0.65, significantly reducing the actual margin value of accounts. This insufficient margin triggered a series of forced liquidations, with the system automatically selling off the account's assets to repay debts, effectively flooding the market with sell orders. Due to the concentrated sell orders and a lack of buying, the USDe price plummeted further, in turn causing more users holding USDe as collateral or positions to be liquidated, creating a domino effect and leading to the transmission of risk to revolving loans and leveraged accounts.

On-chain controlled experiments: the resilience of decentralized liquidity

Under the same extreme market conditions, the chain showed stronger resilience:

AMM mechanism and continuous liquidity curve: Unlike CEXs, which rely on order book depth, DEXs generally adopt the AMM model, whose pricing is based on a constant product formula (x*y=k). This mechanism ensures continuous liquidity across all price ranges. Even under extreme selling pressure, price fluctuations are gradual rather than sudden, sudden drops. Therefore, while prices may drop significantly, sudden price drops back to zero are unlikely. USDe plummeted to $0.65 on CEX, while the on-chain low remained at $0.9859, demonstrating the smooth liquidity provided by AMMs.

Arbitrage Mechanism and Market Self-Healing: The on-chain trading environment is inherently open and composable, allowing any participant (including arbitrage bots) to engage in cross-market transactions upon identifying price discrepancies. When the on-chain price of an asset deviates significantly from that of CEX or other markets, arbitrageurs will quickly buy low and sell high, bringing the price back to a reasonable range. This mechanism effectively limits price deviations in extreme market conditions and accelerates market equilibrium adjustments. As a result, while on-chain price fluctuations are quite significant, they do not experience the same degree of depegging or price spikes as on CEX.

Transaction continuity thanks to a decentralized network structure: The blockchain network itself is inherently redundant and resilient, unlike centralized servers that crash under high concurrency. As long as the blockchain is producing blocks, transactions are packaged and confirmed. In extreme market conditions, on-chain gas prices may surge, but this merely increases transaction costs, not completely disrupting transactions. Users can still buy and sell, ensuring market continuity and user autonomy.

Epilogue: Decentralization’s answer in extreme moments

The bosses have been saying that @BitgetWallet needs to continue expanding its reach, expanding to its fullest potential and providing better liquidity for cross-chain and intra-chain swaps. For me, a recent college graduate, this statement was initially just a strategic goal and product direction. But after experiencing this Black Swan event, I truly understood its significance.

The single-point vulnerability of CEX is not just a technical problem, but a structural flaw; the continuous and smooth liquidity, transparent settlement and stress-resistant network on the chain are the infrastructure that can truly be verified in extreme market conditions.

There will be countless black swans in the future, but as this incident reveals, on-chain and decentralization are not idealism, but the safe haven of certainty that we can find in the storm.