Author: Blockchain Knight

According to CoinGlass data, the forced liquidation amount in the cryptocurrency derivatives market will reach $150 billion in 2025. On the surface, it seems like an annual crisis, but in reality, it is a structural norm of the derivatives-dominated marginal pricing market.

Forced liquidation due to insufficient margin is more like a periodic fee imposed on leverage.

Against the backdrop of an annual total trading volume of $85.7 trillion in derivatives (with a daily average of $264.5 billion), liquidation is merely a byproduct of the market, stemming from the price discovery mechanism dominated by perpetual swaps and basis trading.

As the trading volume of derivatives rises, the open interest has rebounded from the deleveraging low of 2022-2023. On October 7, the nominal open interest for Bitcoin reached $235.9 billion (during the same period, Bitcoin's price had touched $126,000).

However, the record open interest, crowded long positions, and high leverage in small and medium altcoins, combined with the global risk aversion triggered by Trump's tariff policy on that day, led to a market turning point.

On October 10-11, forced liquidations exceeded $19 billion, with 85%-90% being long positions. The open interest decreased by $70 billion within a few days, dropping to $145.1 billion by the end of the year (still higher than at the beginning of the year).

The core contradiction of this volatility lies in the risk amplification mechanism. Conventional liquidation relies on insurance funds to absorb losses, while the automatic deleveraging (ADL) emergency mechanism under extreme market conditions reversely amplifies risks.

When liquidity is exhausted, ADL is frequently triggered, forcibly reducing profitable short and market maker positions, leading to the failure of market-neutral strategies. The long-tail market is hit hardest, with Bitcoin and Ethereum plummeting by 10%-15%, and most small asset perpetual contracts crashing by 50%-80%, creating a vicious cycle of "liquidation - price drop - re-liquidation."

The concentration of exchanges exacerbates the spread of risk, with the top four platforms, including BN, accounting for 62% of global derivatives trading volume. In extreme market conditions, simultaneous risk reduction and similar liquidation logic trigger concentrated sell-offs.

Additionally, infrastructure such as cross-chain bridges and fiat channels are under pressure, hindering the flow of funds across exchanges, rendering cross-exchange arbitrage strategies ineffective, and further widening price gaps.

Of course, the $150 billion in liquidations for the year is not a symbol of chaos but a record of risk aversion in the derivatives market.

The crisis in 2025 has not yet triggered a chain reaction of defaults, but it has exposed the structural limitations of relying on a few exchanges, high leverage, and certain mechanisms, with the cost being the centralization of losses.

In the new year, we need more sound mechanisms and rational trading; otherwise, the events of October 10-11 may repeat.

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