Flash Crash on October 10 Linked to Stablecoin Disruption, Says Tom Lee
Tom Lee, chairman of BitMine and noted crypto strategist, has attributed the dramatic market collapse on October 10 to a “flash crash” in a stablecoin price combined with major market-maker liquidity breakdowns. According to Lee, the chain of events revealed structural fragilities in crypto market infrastructure rather than a simple sentiment-driven trade-off.
Lee explained that one specific stablecoin on a major platform briefly traded at roughly $0.65 due to a pricing-feed glitch, triggering automatic liquidations and cascading margin calls across futures and spot markets. He described this event as the “ignition point” that exposed large trading firms and liquidity-provider balance sheets, many of which were over-leveraged and forced into deleveraging, thereby draining market liquidity.
Major market-making firms suffered heavy losses during the crash, with Lee estimating up to $19 billion to $20 billion wiped out across crypto. With a sizable portion of the market-maker balance sheet compromised, liquidity evaporated and order-book depth diminished sharply. Lee likened market-makers to “invisible central banks” of crypto, arguing that when their capacity to provide liquidity is impaired, price discovery becomes fragile and prone to cascade-style failures.
Liquidity vacuum and ripple effects
Following the stablecoin mispricing, Lee noted that many market-makers cut back trading, hedging and underwriting activity to conserve capital. This led to a rapid shrinkage of available liquidity, causing slippage to widen and making even modest trade orders disruptive. According to his analysis, the market entered a phase of “crypto-quantitative tightening,” where order-book thinning rather than macro sentiment became the dominant driver of price behaviour.
Since October 10, some watchers believe the market remains in a weeks-long unwind of excess leverage and impaired liquidity rather than an integrated recovery. Lee suggested that the rebound may require up to eight weeks of balance-sheet repair and liquidity replenishment before normal trading dynamics return.
Strategic implicatiions for crypto infrastructure
The episode throws into sharp relief the risks that infrastructure failures—even one isolated stablecoin pricing error—can trigger far-reaching market disruption when fragile liquidity providers are involved. For platforms operating in derivatives, on-chain futures and liquidity provisioning, the incident underscores the importance of resilience in plumbing, counterparty strength and settlement reliability.
From a broader ecosystem standpoint, the crash highlights the need for more robust circuit-breakers, deeper liquidity reserves and multi-venue redundancy in trade routing. Asset managers and institutional participants may place higher value on platforms with transparent settlement mechanisms and strong counterparty frameworks.
Looking ahead, the market will monitor how rapidly liquidity rebuilding occurs, whether the large firms hit during the crash can recapitalise and whether similar pricing errors can be prevented. The incident offers an significant case study in how rapidly a single point of failure in stablecoin infrastructure can cascade into a system-wide market event.
