A contemporary bout of soul-searching has gripped the crypto derivatives trade as main market contributors argue that the market’s construction is basically flawed – not simply unfortunate.
Wintermute founder and CEO Evgeny Gaevoy set the tone on X, arguing that the core downside is just not perpetual futures themselves however the best way key venues are architected. Posting beneath his deal with @EvgenyGaevoy (wishful_cynic), he wrote that “the true challenge is just not the perp design however the centralized (and quadi [sic] decentralized) exchanges which can be prime dealer, CLOB and custodian multi function,” including that conventional finance “solved all these things very long time in the past.”
His critique targets the vertically built-in mannequin that dominates each centralized exchanges and a few so-called “decentralized” platforms, the place custody, matching, threat administration and prime brokerage-like features are bundled right into a single entity. In stress occasions, that consolidation can flip one venue right into a systemic choke level.
Structural Weak spot Threatens The Crypto Market
DeFiance Capital founder Arthur Cheong (@Arthur_0x) locations the blame partly on derivatives product design. He argues that “crypto derivatives (primarily perps) product design and market construction that encompass it stay the largest downside the trade must deal with earlier than it will probably develop to the subsequent stage in a sustainable method.”
He attracts a straight line between the March 2020 crash and the latest 10 October (“10/10”) meltdown. In March 2020, he notes, Bitcoin’s 50–70% intraday plunge was exacerbated by BitMEX-style BTC-margined “quanto” perps, “which suggests BTC perps are collateralized by BTC not stablecoins thus you get the intense reflexivity on the draw back and there’s simply little or no approach you possibly can hedge this quanto perp publicity.”
In line with Arthur, most contributors acknowledged this as a design flaw. As stablecoin utilization grew, the market share of BTC-margined quanto perps on BitMEX fell from “>80% to lower than 20% in a single 12 months,” and by mid-2021 “most individuals are utilizing USDT margined BTC perps.” That collective shift, he argues, “have positively enhance[d] the resilience of market construction considerably” and decreased volatility in BTC, although he nonetheless “look[s] ahead to a brand new product design […] considerably higher than the present iteration of crypto perps.”
If Gaevoy and Arthur give attention to structure and devices, pseudonymous dealer The White Whale (@TheWhiteWhaleV2) has put the human price of latest failures entrance and heart in a X publish with 1.8 million views.
Within the extensively shared thread explaining his “private determination to step away from buying and selling on HyperLiquid,” he praises HyperLiquid founder Jeff Yan and the staff for dragging “structural equity into the highlight,” however concludes that 10/10 uncovered one thing deeper. “The truth that one centralized change can set off a world liquidation cascade and pressure momentary worth dislocations throughout each protocol? That’s not a ‘black swan.’ That’s a design flaw.”
His recap of 10/10 is stark: Binance relied by itself oracle, which depegged a stablecoin and began “a smaller, however manageable, liquidation chain.” Then “their API mysteriously went offline.” Market makers who “function largely delta-neutral” immediately couldn’t hedge; they pulled quotes throughout CEXs and DEXs. “With no liquidity current, worth falls off a cliff.”
The trade’s response, he argues, revealed a misaligned set of priorities. “Victory laps” over “Zero unhealthy debt!” and “Liquidations processed flawlessly!” might present protocols survived, however “Nice. The protocol didn’t die. However customers did.” He insists that “defending the protocol IS essential – clearly. However it’s not the identical factor as defending merchants.”
In its place, White Whale factors to Drift on Solana as one venue that has a minimum of tried to encode safety on the protocol stage. Drift’s liquidation safety, he writes, “isn’t magic. It’s not flawless. However it exists – and extra importantly, it labored.” A key rule is easy: “Is the oracle worth diverging by greater than 50% from the 5-minute TWAP?” If that’s the case, the system quickly halts liquidations, filtering out “rip-off wicks” and pushing edge instances to the insurance coverage fund.
Throughout Gaevoy’s structural critique, Yan’s product-design historical past and White Whale’s exit from HyperLiquid, a standard conclusion emerges: in the present day’s crypto market isn’t just unstable – it’s structurally biased towards merchants in moments of stress. Whether or not the trade now prioritizes circuit breakers, segregated roles and on-chain protections will decide if 10/10 turns into a turning level, or simply one other preventable catastrophe.
At press time, the full crypto market cap fell to $3.09 trillion.
Featured picture created with DALL.E, chart from TradingView.com
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