Binance to Blame for the 1011 Crypto Crash? OKX vs Dragonfly Sparks Industry War

Binance, OKX, and Dragonfly Clash Over What Really Caused the 1011 Crypto Crash

The cryptocurrency industry is once again divided over one of its most disruptive market events in recent history: the so-called 1011 crypto crash. Months after billions of dollars in leveraged positions were wiped out in a single day, senior figures from leading exchanges, venture capital firms, and protocol teams are publicly disputing what actually triggered the collapse.

At the center of the debate are executives and investors from OKX, Binance, Dragonfly, and Ethena, each offering sharply different interpretations of how the market unraveled on October 11. The renewed dispute has reignited broader questions about systemic leverage, exchange incentives, product design, and the fragile structure of modern crypto markets.

Despite extensive post-mortems, no single explanation has gained universal acceptance. Instead, the controversy highlights how deeply interconnected — and poorly understood — crypto market mechanics have become.

What Was the 1011 Crypto Crash?

The term “1011 crypto crash” refers to a violent wave of price declines and cascading liquidations that swept through global digital asset markets on October 11. Within hours, billions of dollars in leveraged positions were forcibly closed across major exchanges, triggering extreme volatility across Bitcoin, Ethereum, and a wide range of altcoins.

Source: Wu Blockchain X

Market participants have compared the event to earlier systemic shocks such as Terra-LUNA, Three Arrows Capital, and even the FTX collapse. While the structural damage was different, the speed and scale of the liquidations raised alarms about how quickly risk can propagate through crypto’s always-on, highly leveraged trading environment.

What makes the 1011 crash unusual is that it did not originate from a single protocol failure or bankruptcy announcement. Instead, it appeared to emerge from a complex mix of market panic, technical stress, and feedback loops within exchange infrastructure.

OKX Founder’s Claim: Binance and USDe at the Center

The debate resurfaced publicly after Star Xu, founder and CEO of OKX, posted a detailed critique on January 31 outlining his view of the crash. According to Xu, the root cause was not random panic, but a structural weakness created by how Binance integrated and promoted USDe, a yield-bearing stable asset developed by Ethena.

Xu argued that Binance’s incentive programs encouraged traders to treat USDe as if it were equivalent to traditional stablecoins such as USDT or USDC, despite having a fundamentally different risk profile.

In his view, this created a hidden leverage loop. Traders could convert stablecoins into USDe, borrow against USDe, and then recycle the borrowed funds back into additional USDe exposure. Over time, this loop amplified systemic leverage without being immediately visible in headline metrics.

When market volatility spiked, USDe briefly lost its peg, triggering margin calls and forced liquidations. According to Xu, this sequence turned a manageable market drawdown into a full-scale liquidation cascade.

Xu emphasized that his criticism was not a personal attack on Binance, but a warning about how product design decisions at large platforms can unintentionally destabilize the broader market.

Dragonfly Pushes Back: “The Timeline Doesn’t Match”

Dragonfly Capital partner Haseeb Qureshi strongly rejected Xu’s interpretation, calling it inconsistent with observed market data. In a detailed rebuttal, Qureshi argued that the sequence of events simply does not support the idea that USDe de-pegging caused the crash.

According to Dragonfly’s analysis, Bitcoin had already reached its intraday low roughly 30 minutes before USDe showed meaningful price deviation. This suggests that the broader market downturn preceded, rather than followed, issues with USDe.

Qureshi also noted that while USDe price anomalies were most visible on Binance, liquidations occurred simultaneously across multiple exchanges worldwide. In previous systemic collapses such as Terra or FTX, price dislocations spread uniformly across venues. The 1011 crash, by contrast, showed fragmented behavior, pointing to exchange-level stress rather than a single asset failure.

He further questioned why concerns about USDe were being raised months after the event, given that order book data and liquidation metrics had been publicly available since October.

An Alternative Explanation: Panic, APIs, and Market Fragility

Beyond the dispute over USDe, some analysts argue that the 1011 crash was driven by a convergence of external shocks and technical bottlenecks rather than any one product.

One factor cited is macro-driven panic. At the time of the crash, markets were reacting to renewed geopolitical tension and aggressive tariff rhetoric from former U.S. President Donald Trump, which rattled global risk assets. Unlike traditional markets, crypto trades continuously, allowing fear to cascade rapidly without circuit breakers.

Another key issue raised was exchange infrastructure stress, particularly around application programming interfaces (APIs). During the height of volatility, reports surfaced that Binance’s API experienced disruptions. If market makers were unable to rebalance positions across exchanges, liquidity could evaporate instantly, intensifying price swings.

Automatic deleveraging systems also played a role. When liquidation engines activate simultaneously across venues, they can overwhelm order books, leaving no natural buyers to stabilize prices. In such conditions, even modest selling pressure can spiral into a full-scale collapse.

CZ, Ethena, and the Conflict Question

Binance founder Changpeng Zhao (CZ) briefly entered the discussion, publicly agreeing with Dragonfly’s timeline analysis before later deleting his post. Ethena founder Guy Young also pushed back against OKX’s claims, arguing that USDe price deviations occurred after broader market stress had already taken hold.

Source: Xpost

Qureshi acknowledged potential conflicts of interest openly. Dragonfly is an investor in Ethena, while both Binance and OKX have commercial relationships with the protocol. He also noted that OKX had previously invested in Dragonfly funds.

Despite these overlapping ties, Qureshi maintained that the disagreement was about factual accuracy, not loyalty.

What Really Caused the 1011 Crypto Crash?

As of now, there is no single explanation that fully accounts for the 1011 crypto crash. Evidence points toward a multifactor failure involving heightened leverage, fragile market structure, technical constraints, and psychological panic — rather than the actions of one exchange or one token.

What the episode ultimately reveals is how sensitive crypto markets remain to feedback loops created by incentives, automation, and always-on trading. When liquidity thins and systems strain, small triggers can produce outsized consequences.

For regulators, exchanges, and traders alike, the lesson is clear: transparency, resilient infrastructure, and cautious product design matter more than ever. Without them, future crashes may not just be possible — they may be inevitable.

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