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$3.2 billion vanished in under one hour. And why?
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Well, because one of the
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market's most important players disappeared.
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These invisible players in the
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market are called market, makers.
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They're the reason you can
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buy and sell crypto instantly.
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But on October 10, 2025, their sudden retreat caused one
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of the most violent market crashes in crypto history.
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And today, we're pulling back the curtain on these sile
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who, for better or for worse, truly run the market.
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Welcome back to Unwrapped, your podcast series
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for DeFi NFTs onchain culture and all
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things in the BMX ecosystem.
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And before we jump in, just an important
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reminder that none of this is financial advice.
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It's all for educational purposes only.
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So what is a market maker? Well, it's.
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To use a pretty simple analogy here.
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Imagine a specialized grocery store that only
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buys and sells, say, gold apples.
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A market maker is the owner of that store, and their
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job is to always have a buy price and always have
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a sell price 24 hours a day, seven days a week.
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And when you walk into the store wanting to
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buy a golden apple, the owner will sell you
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one on its shelf for, let's say, $30,100.
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This is the ask price.
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But when you walk in wanting to sell a gold
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apple, the owner buys it from you and puts it
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on their shelf, paying you, let's say, $30,000.
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This is the bid price.
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And the market maker is constantly posting both
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of these orders at the same time.
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And that $100 difference, the gap between
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their buy price and their sell price,
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well, that's called the bid ask spread.
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And that's their potential. Prof. Running the store.
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They buy low from sellers, sell high
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to buyers, and pocket the difference.
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And this is how market makers make money.
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Not by betting that the price of gold apples
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will go up, but by earning that tiny spread
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thousands or millions of times per day.
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So why is this store so important?
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Well, without it, the market would be a ghost town.
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It would be what we called illiquid.
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Now, if you're deep into DeFi, you might be
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thinking, wait, wait, wait, wait, wait, wait, wait.
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What about decentralized exchanges?
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And you're 100% right.
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They use a totally different and amazing system
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called liquidity pools to solve this exact problem,
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often without these traditional market makers.
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But that's a, completely different,
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separate topic for another day.
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For today, we're focused on the centralized world
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like Binance or Coinbase, the big exchanges where
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the vast majority of trading still happens.
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And in that world, this
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grocery store model is Everything.
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So in that model, imagine trying to sell
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your gold apple in an empty farmer's market.
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You'd have to stand there and shout,
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anyone want to buy my golden apple?
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Until eventually, maybe someone shows up.
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But what price would you sell it for?
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I mean, really, you'd have no idea.
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Maybe the last gold Apple sold for $30,000.
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But if the only person who shows up offers
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you $25,000, you'd either take it or you wait.
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That's an illiquid market.
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Now imagine a big trader trying
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to sell 1,000 gold apples.
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Their one giant sale could crash.
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Crash the market for everyone.
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And this is where the market
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makers grocery store is essential.
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By always being there, they create two crucial things.
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Number one, order book depth.
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This is a fancy term for how many gold
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apples are on these shelves at different prices.
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Market makers fill their shelves with their
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buy and sell orders, creating a, thick,
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stable market that can absorb large trades.
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Second, low slippage.
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Slippage is the difference between the price you expect
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to pay and the price you actually pay.
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In that empty farmer's market,
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you'd have massive slippage.
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But because the market maker's store has so many
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gold apples on the shelf at, tiny price differences,
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your order executes at a more price, predictable price.
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Market makers are the ones who turn a chaotic
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empty farmer's market into a reliable 24,7 supermarket.
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So market makers get to profit
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from the bid, ask, spread.
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And remember, that's the small gap between
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their buy price and their sell price.
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But, they also have a second, even more important way
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of making money exchanges pay them to be there.
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Think of a centralized exchange like Coinbase or Binance,
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and think of them as giant shopping malls.
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You and I were the shoppers.
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We go to the mall to buy
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and maybe even return some items.
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The market maker is the giant
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anchor store, the Nordstrom, the Macy's.
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The owner of the mall knows that no
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one's going to come to an empty mall.
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They need that big, reliable anchor store to
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be there with its lights on and shelves
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full to attract many of the shoppers.
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So the exchange, the mall, gives the market
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maker, the anchor store, a special deal.
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When you and I, the retail shoppers,
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make a trade, we are takers.
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We take the price that is offered to us, and the
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mall charges us a fee for this, called the taker fee.
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When the market maker posts its orders, it's a maker.
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It makes the market.
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Not only does the mall not charge them
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a fee, it often gives them a rebate.
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And that's right, the Exchange will pay
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the market maker for providing liquidity.
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This is the maker taker model.
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Exchanges will even give them other perks,
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like faster connections to keep them happy.
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It's a symbiotic relationship.
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The market maker brings the liquidity, the liquidity
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attracts the retail traders and the retail traders
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pay the fees that fund the exchange.
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So being a market maker sounds like a great gig, right?
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You get paid by the exchange and you
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get to make money on that spread.
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Sounds like a risk, free money making machine.
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But in reality it's actually way more
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risky than, than it might sound.
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And to understand the October 10th crash, you've got
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to understand the underlying risks for market makers.
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And there are two big ones.
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Risk 1 inventory risk.
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Let's go back to our gold apple store.
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What happens if there's a panic and
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everyone starts returning their gold apples?
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Well, the job of the market
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maker is to buy them, right?
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So they buy and they buy and they buy
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and suddenly their shelves are overflowing with gold apples.
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And before they can resell them, news breaks.
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Gold apples are unhealthy and the
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price of gold apples crashes.
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They're now stuck holding a massive inventory of
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an asset that is rapidly losing value.
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Risk 2 adverse selection.
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And this is the most important
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one, this is the suckers risk.
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Adverse selection is the risk of trading with
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someone who knows more than you do.
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And now for this example.
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I want you to stop being the shopper.
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I want you to imagine that you're the market maker.
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You're the owner of that gold apple store and you're
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standing at the cashier register as the store's owner.
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Let's say your price to buy gold apples is $30,000.
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Suddenly a trader runs in and sells you
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1,000 gold apples at your 30,000 bid price.
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A second later, another trader comes in
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and sells you another thousand gold apples.
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And you as a store owner, you fulfill your
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duty, but your instincts are telling you something.
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You know that something's wrong.
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These aren't normal customers.
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These are informed traders.
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They know something you don't.
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Maybe a new regulation, a, hack or a bad
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political announcement is about to hit the news.
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A minute later, that news hits the public and
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the price of gold apples crashes to $25,000.
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And you just got fleeced.
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You were the sucker who provided liquidity to
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all the informed sellers right before the crash.
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That is adverse selection.
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And this is why when things get
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crazy, market makers don't just sit there.
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Sometimes they run.
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And this brings us to the October 10, 2025 liquidation
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cascade and this is where all those concepts collide.
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The setup.
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The market was fine.
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Bitcoin was over $120,000.
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But many traders were over leveraged, which
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is a fancy term for borrowing money
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in order to make bigger gambles.
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Think of it this way.
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These overleveraged traders, they didn't
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just buy one gold apple.
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They took out a loan to buy a truckload of gold apples.
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And they were making a bet that
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the price would only go up.
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The catalyst.
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Unexpected news hit.
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The White House announced a surprise
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100% tariff on, Chinese imports.
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This was a massive negative shock to the global market.
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The cascade the news hits.
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The price of bitcoin starts to drop.
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And those leveraged traders, their loans
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are now in serious trouble.
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The exchange's system sees that their bets
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are failing and automatically forces them, to
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sell in order to coverage the loan.
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This is a liquidation.
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And this isn't a normal person just selling.
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This is a flood of automatic sell
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at any price orders hitting the market.
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And within about 40 minutes, nearly $7 billion
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worth of positions were forced to sell.
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At the absolute peak in one single
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minute, over $3.2 billion was liquidated.
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What does the grocery store owner do?
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They see a tidal wave of sellers running out the door.
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And this is the adverse select situation
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we talked about coming to life.
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From the market maker's perspective.
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This is an informed trader event.
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They don't know who's selling because of panic and who's
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selling because they know even worse news is coming.
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But it doesn't matter because they're not
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going to wait around to find out.
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They decide they're not going to be the sucker left holding
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all the bags and they decide to pull their order.
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And this is the climax.
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The forced sell orders are still coming in, but now there
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are no more market makers left to buy from them.
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Going back to the grocery store example, it's
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like a panicked mob running into the store
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to return all their golden apples they bought.
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But no one's at the cash registers.
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The exchange's liquidation engine is desperate.
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It needs to sell these orders.
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So it searches for any buy order, no matter how low.
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And the price plummets in a liquidity vacuum.
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And this is why the crash was so uneven.
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Bitcoin, which has the most
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market makers, fell about 14%.
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Its shelves may have been thin, but not completely
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empty, but the altcoins Solana crashed over 40%.
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Ton coin fell almost 80%.
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Some small tokens flash crash to near zero.
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And not because they were worthless, but,
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because for a few crazy, scary seconds.
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There was literally not a single
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buy order left on the books.
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That's what happens when every cash register
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in that store suddenly slams shut.
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And then it was over.
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The forced sellers were all flushed out.
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The storm passed.
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And what happened?
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The market makers, they came back.
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And within about 30 minutes of the event, order book
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depth recovered to over 90% of its pre crash levels.
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The grocery stores, they turned their lights back on.
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They updated their prices for the new
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lower reality and reopened for business.
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So the crash of October 10th
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was a big, painful stress test.
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It showed that market makers were
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the unseen engine of calm, markets.
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They're the reason you can trade
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instantly and at a fair price.
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But it also showed that they're
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not charity, they're risk managers.
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And when a true black swan event hits, their first
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job isn't to protect you, it's to protect themselves.
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Their retreat is what turned the a
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bad day into a historic crypto crash.
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It's the moment the absence of liquidity or
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the ability or inability to buy or sell
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becomes the most powerful force in the market.
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So the next time you make a trade,
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you'll know who you're really trading with.
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A, massive network of market makers all
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balancing on a tightrope of risk and
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reward to keep the market shelves stocked.
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Thank you for watching this episode of Unwrapped.
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If you'd like more content, make sure to
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catch up on our previous episodes of the
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BMX crypto podcast on Apple or Spotify.
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If you're watching this on YouTube, make sure to,
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like, comment subscribe because it all helps greatly.
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Thanks again and I'll catch you on the next one.
00:00:00,560 --> 00:00:05,920
$3.2 billion vanished in under one hour. And why?
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Well, because one of the
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market's most important players disappeared.
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These invisible players in the
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market are called market, makers.
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They're the reason you can
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buy and sell crypto instantly.
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But on October 10, 2025, their sudden retreat caused one
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of the most violent market crashes in crypto history.
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And today, we're pulling back the curtain on these sile
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who, for better or for worse, truly run the market.
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Welcome back to Unwrapped, your podcast series
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00:00:38,501 --> 00:00:41,860
for DeFi NFTs onchain culture and all
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things in the BMX ecosystem.
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And before we jump in, just an important
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reminder that none of this is financial advice.
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It's all for educational purposes only.
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So what is a market maker? Well, it's.
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To use a pretty simple analogy here.
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Imagine a specialized grocery store that only
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buys and sells, say, gold apples.
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A market maker is the owner of that store, and their
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job is to always have a buy price and always have
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a sell price 24 hours a day, seven days a week.
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And when you walk into the store wanting to
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buy a golden apple, the owner will sell you
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one on its shelf for, let's say, $30,100.
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This is the ask price.
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But when you walk in wanting to sell a gold
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apple, the owner buys it from you and puts it
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on their shelf, paying you, let's say, $30,000.
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This is the bid price.
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And the market maker is constantly posting both
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of these orders at the same time.
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And that $100 difference, the gap between
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their buy price and their sell price,
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well, that's called the bid ask spread.
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And that's their potential. Prof. Running the store.
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They buy low from sellers, sell high
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to buyers, and pocket the difference.
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And this is how market makers make money.
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Not by betting that the price of gold apples
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will go up, but by earning that tiny spread
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thousands or millions of times per day.
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So why is this store so important?
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Well, without it, the market would be a ghost town.
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It would be what we called illiquid.
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Now, if you're deep into DeFi, you might be
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thinking, wait, wait, wait, wait, wait, wait, wait.
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What about decentralized exchanges?
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And you're 100% right.
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They use a totally different and amazing system
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called liquidity pools to solve this exact problem,
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often without these traditional market makers.
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But that's a, completely different,
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separate topic for another day.
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For today, we're focused on the centralized world
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like Binance or Coinbase, the big exchanges where
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the vast majority of trading still happens.
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And in that world, this
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grocery store model is Everything.
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So in that model, imagine trying to sell
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your gold apple in an empty farmer's market.
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You'd have to stand there and shout,
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anyone want to buy my golden apple?
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Until eventually, maybe someone shows up.
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But what price would you sell it for?
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I mean, really, you'd have no idea.
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Maybe the last gold Apple sold for $30,000.
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But if the only person who shows up offers
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you $25,000, you'd either take it or you wait.
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That's an illiquid market.
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Now imagine a big trader trying
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to sell 1,000 gold apples.
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Their one giant sale could crash.
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Crash the market for everyone.
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And this is where the market
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makers grocery store is essential.
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By always being there, they create two crucial things.
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Number one, order book depth.
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This is a fancy term for how many gold
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apples are on these shelves at different prices.
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Market makers fill their shelves with their
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buy and sell orders, creating a, thick,
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stable market that can absorb large trades.
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Second, low slippage.
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Slippage is the difference between the price you expect
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to pay and the price you actually pay.
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In that empty farmer's market,
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you'd have massive slippage.
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But because the market maker's store has so many
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gold apples on the shelf at, tiny price differences,
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your order executes at a more price, predictable price.
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Market makers are the ones who turn a chaotic
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empty farmer's market into a reliable 24,7 supermarket.
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So market makers get to profit
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from the bid, ask, spread.
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And remember, that's the small gap between
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their buy price and their sell price.
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But, they also have a second, even more important way
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of making money exchanges pay them to be there.
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Think of a centralized exchange like Coinbase or Binance,
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and think of them as giant shopping malls.
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You and I were the shoppers.
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We go to the mall to buy
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and maybe even return some items.
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The market maker is the giant
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anchor store, the Nordstrom, the Macy's.
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The owner of the mall knows that no
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one's going to come to an empty mall.
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They need that big, reliable anchor store to
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be there with its lights on and shelves
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full to attract many of the shoppers.
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So the exchange, the mall, gives the market
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maker, the anchor store, a special deal.
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When you and I, the retail shoppers,
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make a trade, we are takers.
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We take the price that is offered to us, and the
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mall charges us a fee for this, called the taker fee.
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When the market maker posts its orders, it's a maker.
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It makes the market.
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Not only does the mall not charge them
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a fee, it often gives them a rebate.
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And that's right, the Exchange will pay
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the market maker for providing liquidity.
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This is the maker taker model.
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Exchanges will even give them other perks,
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like faster connections to keep them happy.
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It's a symbiotic relationship.
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The market maker brings the liquidity, the liquidity
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attracts the retail traders and the retail traders
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pay the fees that fund the exchange.
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So being a market maker sounds like a great gig, right?
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You get paid by the exchange and you
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get to make money on that spread.
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Sounds like a risk, free money making machine.
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But in reality it's actually way more
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risky than, than it might sound.
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And to understand the October 10th crash, you've got
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to understand the underlying risks for market makers.
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And there are two big ones.
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Risk 1 inventory risk.
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Let's go back to our gold apple store.
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What happens if there's a panic and
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everyone starts returning their gold apples?
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Well, the job of the market
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maker is to buy them, right?
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So they buy and they buy and they buy
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and suddenly their shelves are overflowing with gold apples.
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And before they can resell them, news breaks.
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Gold apples are unhealthy and the
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price of gold apples crashes.
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They're now stuck holding a massive inventory of
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an asset that is rapidly losing value.
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Risk 2 adverse selection.
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And this is the most important
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one, this is the suckers risk.
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Adverse selection is the risk of trading with
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someone who knows more than you do.
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And now for this example.
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I want you to stop being the shopper.
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I want you to imagine that you're the market maker.
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You're the owner of that gold apple store and you're
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standing at the cashier register as the store's owner.
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Let's say your price to buy gold apples is $30,000.
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Suddenly a trader runs in and sells you
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1,000 gold apples at your 30,000 bid price.
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A second later, another trader comes in
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and sells you another thousand gold apples.
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And you as a store owner, you fulfill your
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duty, but your instincts are telling you something.
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You know that something's wrong.
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These aren't normal customers.
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These are informed traders.
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They know something you don't.
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Maybe a new regulation, a, hack or a bad
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political announcement is about to hit the news.
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A minute later, that news hits the public and
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the price of gold apples crashes to $25,000.
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And you just got fleeced.
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You were the sucker who provided liquidity to
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all the informed sellers right before the crash.
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That is adverse selection.
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And this is why when things get
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crazy, market makers don't just sit there.
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Sometimes they run.
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And this brings us to the October 10, 2025 liquidation
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cascade and this is where all those concepts collide.
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The setup.
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The market was fine.
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Bitcoin was over $120,000.
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But many traders were over leveraged, which
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is a fancy term for borrowing money
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in order to make bigger gambles.
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Think of it this way.
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These overleveraged traders, they didn't
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just buy one gold apple.
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They took out a loan to buy a truckload of gold apples.
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And they were making a bet that
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the price would only go up.
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The catalyst.
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Unexpected news hit.
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The White House announced a surprise
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100% tariff on, Chinese imports.
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This was a massive negative shock to the global market.
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The cascade the news hits.
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The price of bitcoin starts to drop.
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And those leveraged traders, their loans
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are now in serious trouble.
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The exchange's system sees that their bets
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are failing and automatically forces them, to
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sell in order to coverage the loan.
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This is a liquidation.
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And this isn't a normal person just selling.
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This is a flood of automatic sell
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at any price orders hitting the market.
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And within about 40 minutes, nearly $7 billion
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worth of positions were forced to sell.
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At the absolute peak in one single
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minute, over $3.2 billion was liquidated.
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What does the grocery store owner do?
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They see a tidal wave of sellers running out the door.
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And this is the adverse select situation
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we talked about coming to life.
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From the market maker's perspective.
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This is an informed trader event.
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They don't know who's selling because of panic and who's
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selling because they know even worse news is coming.
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But it doesn't matter because they're not
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going to wait around to find out.
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They decide they're not going to be the sucker left holding
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all the bags and they decide to pull their order.
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And this is the climax.
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The forced sell orders are still coming in, but now there
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are no more market makers left to buy from them.
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Going back to the grocery store example, it's
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like a panicked mob running into the store
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to return all their golden apples they bought.
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But no one's at the cash registers.
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The exchange's liquidation engine is desperate.
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It needs to sell these orders.
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So it searches for any buy order, no matter how low.
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And the price plummets in a liquidity vacuum.
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And this is why the crash was so uneven.
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Bitcoin, which has the most
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market makers, fell about 14%.
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Its shelves may have been thin, but not completely
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empty, but the altcoins Solana crashed over 40%.
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Ton coin fell almost 80%.
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Some small tokens flash crash to near zero.
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And not because they were worthless, but,
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because for a few crazy, scary seconds.
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There was literally not a single
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buy order left on the books.
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That's what happens when every cash register
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in that store suddenly slams shut.
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And then it was over.
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The forced sellers were all flushed out.
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The storm passed.
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And what happened?
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The market makers, they came back.
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And within about 30 minutes of the event, order book
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depth recovered to over 90% of its pre crash levels.
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The grocery stores, they turned their lights back on.
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They updated their prices for the new
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lower reality and reopened for business.
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So the crash of October 10th
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was a big, painful stress test.
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It showed that market makers were
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the unseen engine of calm, markets.
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They're the reason you can trade
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instantly and at a fair price.
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But it also showed that they're
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not charity, they're risk managers.
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And when a true black swan event hits, their first
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job isn't to protect you, it's to protect themselves.
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Their retreat is what turned the a
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bad day into a historic crypto crash.
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It's the moment the absence of liquidity or
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the ability or inability to buy or sell
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becomes the most powerful force in the market.
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So the next time you make a trade,
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you'll know who you're really trading with.
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A, massive network of market makers all
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balancing on a tightrope of risk and
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reward to keep the market shelves stocked.
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Thank you for watching this episode of Unwrapped.
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If you'd like more content, make sure to
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catch up on our previous episodes of the
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BMX crypto podcast on Apple or Spotify.
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If you're watching this on YouTube, make sure to,
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like, comment subscribe because it all helps greatly.
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Thanks again and I'll catch you on the next one.
