By Chloe, ChainCatcher

The crypto market was decimated in the early hours of the morning, with the root cause stemming from US President Trump's surprise tariff policy. In a post on Truth Social, Trump accused China of "sending letters to multiple countries proposing export controls on all rare earth elements," criticizing this as a "very hostile" move that amounted to "holding the world hostage" with rare earth resources.

Immediately afterwards, Trump announced that his meeting with China, originally scheduled for the Asia-Pacific Economic Cooperation (APEC) summit in South Korea two weeks later, was no longer necessary, effectively canceling the Trump-Xi meeting. More significantly, Trump announced after the US stock market closed that he would impose a new 100% tariff on Chinese imports, effective November 1st, and that he would also implement export controls on "all critical software" on the same day.

This news had a direct impact on Wall Street. On the 10th, US stocks initially rose before falling. The Dow Jones Industrial Average rose 283 points at one point before plummeting 887 points. The Nasdaq Composite Index plummeted over 3.56% at one point. The VIX index, a gauge of fear, broke above 20 for the first time since April, signaling a surge in market pressure.

Stock market panic quickly spread to the crypto market. Bitcoin plummeted to $102,000 this morning, before returning to around $111,000 at press time, bringing its price back to its October 1st level. Ethereum plummeted to $3,392 before closing at $3,745 at press time. The overall crypto market capitalization declined by nearly 10%, with altcoins suffering particularly hard, with the CMC (Currently Valued Market Index) dropping to 35.

According to Coinglass data, $19.141 billion in margin calls were recorded across the entire network over the past 24 hours, setting a new record. A total of 1,621,284 individuals worldwide were liquidated, with $16.686 billion in long positions and $2.455 billion in short positions. The largest single liquidation occurred on the Hyperliquid platform's ETH-USDT contract pair, valued at $203 million.

In terms of currency: Bitcoin liquidation was US$5.317 billion, Ethereum liquidation was US$4.378 billion, SOL liquidation was US$1.995 billion, HYPE liquidation was US$888 million, and XRP liquidation was US$699 million.

After the crypto market plummeted in the early morning, the current funding rates of mainstream CEX and DEX show that the current market has clearly turned bearish.

Is the collapse of altcoins due to the funding dilemma of market makers?

Crypto KOL @octopusycc analyzed and pointed out that the plunge in altcoins was entirely due to the market makers' problem, and it was a typical case of their inability to fully hedge.

The core issue lies in the limited funds of market makers. Market makers allocate funds to different projects in a tiered manner, with Tier 0 projects receiving the most funding and Tier 4 projects receiving the least support. Following the collapse of Jump, the market became unbalanced, with a large number of projects previously served by Jump migrating to other market makers. However, these market makers simply do not have enough funds to meet the needs of all projects.

When Trump's tariff announcement triggered a market sell-off, facing tight funding constraints, market makers prioritized protecting large Tier 0 and Tier 1 projects, even resorting to diverting funds originally allocated to smaller projects to support larger projects. This reallocation of resources was the primary reason why smaller altcoin projects completely lost support.

In addition to the macro-level triggers and the funding dilemma of market makers, many industry insiders have also conducted in-depth analysis and believe that the direct technical cause of this epic plunge is the chain liquidation caused by the decoupling of USDe on the Binance platform.

Primitive Ventures co-founder Dovey posted on X, speculating that the recent market crash was caused by a margin call on Binance by a large institution (possibly a traditional trading firm using cross-margin trading). Dovey noted, "While further analysis is needed, preliminary observations indicate that the price of USDe on Binance plummeted to as low as 0.6, while prices on other exchanges remained relatively strong."

Furthermore, there has been a significant divergence in volatility between tokens listed on Binance and those not. This means that USDe has devalued by as much as 40% on the Binance platform, and the problem may be concentrated on Binance rather than the entire market.

Crypto KOL Hanba Longwang said, "(This market crash) may be due to the 12% subsidy of USDe. Many market users engaged in USDe revolving loans. Affected by Trump's trade war, USDe was attacked by premiums, resulting in the liquidation of USDe revolving loans and further decline of USDe."

He further pointed out the fatal chain reaction: "In addition, some whales and market makers used USDe as margin in contracts. Due to the USDe de-pegging discount, their leverage inexplicably doubled, and ultimately even a 1x long position would be wiped out. (Further triggering a chain reaction,) the price of small altcoin contracts plummeted, and USDe plummeted, sometimes even doubling, ultimately causing heavy losses for market makers."

Crypto KOL BitHappy believes, "This time, on-chain liquidations outperformed exchanges, especially at the lending level. This is primarily due to the design of protocols like Ethena and AAVE. To maximize TVL, they encourage revolving loans and peg the value of loan assets to collateral at a 1:1 ratio." He cites the example of USDT and USDe revolving loans on Aave, which previously avoided liquidation risk due to the use of fixed oracles. Combined with the subsidy program at the time, the TVL increased by billions in just a few days. This mechanism also drives nearly all stablecoins to a 1:1 ratio in the oracles of lending protocols. As a result, the majority of users who engaged in on-chain stablecoin revolving loans remained largely unscathed."

However, Binance's situation is completely different. "The heaviest losses from USDe liquidations occurred on Binance. On the one hand, Binance launched a promotion offering 12% interest on USDe, attracting a large number of whales to participate in revolving loans (which ultimately resulted in almost all of them being wiped out). On the other hand, USDe can also be used as contract margin."

Binance also officially announced that three tokens, USDE, BNSOL, and WBETH, recently experienced price decoupling, resulting in forced liquidation of some users' assets. The Binance team stated that they are currently conducting a comprehensive review of the affected users' situation and related compensation measures, while also strengthening risk management controls to prevent similar incidents from recurring.

Outlook: Will the TACO trade repeat itself?

Finally, returning to the macroeconomic perspective, this isn't the first time Trump has made such sudden statements. Back in April, he raised tariffs on China to 145%, which also caused a market crash. However, the US government ultimately held its ground, and the indefinite postponement of the tariffs on China prompted a steady market rally.

Many investors jokingly call this market trend "manipulated" by Trump a TACO trade, which means shorting the market when Trump announces the tariff policy (market sentiment reacts quickly), and then going long again after a few trading days (Trump will soften his stance and cancel the policy).

If investors can seize the opportunity to buy at the bottom, it may be a good opportunity. However, the current situation between China and the United States is showing signs of deterioration, and the US government shutdown is another risk factor: the White House Office of Management and Budget (OMB) said on the 10th that it has begun to lay off federal employees.

White House officials said that the scale of layoffs at the federal level will involve at least thousands of people, and there is no sign of the end of the federal government shutdown. Investors are advised to wait until the situation stabilizes before making arrangements, and avoid blindly buying at the bottom amid high uncertainty to avoid the risk of being hit again.