Old Case Revisited: The 1011 Crash Sparks a Public Opinion Battle Between Exchanges and Ecosystems

Original | Odaily (@OdailyChina)

Author | Ding Dang (@XiaMiPP)

Last weekend, a wave of concentrated criticism targeting Binance once again surged on X. This time, it was the settling of old scores being reignited.

The spark for the controversy was on January 26th, when ARK Invest CEO Cathie Wood (nicknamed "Cathie Wood") stated in an interview with Fox Business that while gold, silver, and U.S. stocks have been surging recently, cryptocurrencies have not risen due to the lingering aftershocks of a $28 billion leveraged liquidation caused by Binance's system failure on October 11th last year (referred to as the "1011 Incident").

As an early investor in Coinbase and one of the first Wall Street fund managers to incorporate Bitcoin into the institutional investment narrative, Cathie Wood possesses a natural cross-border voice between traditional finance and the crypto industry. Therefore, her remarks quickly revived the market's collective memory of the 1011 Incident. Coinciding with a period of sluggish market sentiment, where people were in a mood for gossip, this issue continued to ferment.

Binance responded quickly. Co-CEO He Yi stated that Cathie Wood is not a Binance user, and Binance does not serve U.S. entities. The implication seemed to suggest that Cathie Wood was not aware of the real situation or that there was some conspiracy theory behind it.

The Cause and Effect of the 1011 Incident: The Butterfly Effect of a "System Failure"

To understand this crusade, one must first clarify the sequence of events of the 1011 Incident. Simply put, it was a "black swan" event for the crypto market: that day, the market suddenly experienced violent fluctuations, with the total global crypto market capitalization evaporating over $500 billion, and leveraged position liquidations exceeding $19 billion, making it arguably the largest leveraged liquidation event in crypto industry history. From numerous ordinary users to many well-known market makers and VCs, many suffered significant losses in this incident.

The reason Binance is accused of being the "culprit" is that at the critical juncture of extreme market volatility, its platform exhibited significant liquidity anomalies. Whether officially described as a "software issue" or a "brief malfunction of the trading module," the market witnessed an extremely brutal outcome: the Auto-Deleveraging (ADL) mechanism was triggered, cross-account chain liquidations commenced, and some market maker accounts suffered devastating losses in a short period, even being forced to exit the market. (For details, read: Explaining the ADL Mechanism of Perpetual Contracts: Why Your Profitable Trade Can Be Automatically Liquidated?.)

Another clue repeatedly brought up points to Binance's USDe incentive campaign at the time. This campaign promoted a 12% annualized yield as its selling point, and some users also leveraged assets like USDe through looped borrowing to amplify returns and risks. When USDe "depegged" (more accurately, price discrepancies between platforms and on-chain/off-chain), it triggered large-scale liquidations.

Afterwards, Binance issued statements repeatedly emphasizing that the sell-off was primarily driven by broader market conditions, not a platform system failure. Subsequently, Binance paid approximately $283 million in compensation to users affected by the depeg and related issues. This compensation did quell some crypto users' anger in the short term.

But the controversy did not disappear. Whether it was Binance's retrospective adjustments to the abnormal K-line movements of certain tokens after the event, or long-standing doubts surrounding the Binance Alpha listing mechanism, these accumulated grievances have found a new outlet through the 1011 public opinion incident.

As public opinion heats up, it now seems to be gradually evolving into factional division. Odaily will introduce some key figures from both sides of the public opinion in the following sections.

One of the Accusing Factions: Leonidas's Long-Term Offensive

The earliest to launch intensive attacks was ZapApp co-founder Leonidas, an important figure in the Bitcoin Ordinals ecosystem and a core promoter of DOG (a popular dog-themed meme coin on Bitcoin).

He almost daily posts criticisms about Binance on X, becoming one of the most prominent representatives of the current anti-Binance faction. However, a closer look at his expressions reveals that he is not pursuing the 1011 incident itself. For Leonidas, 1011 is more like "evidence": an example that can be used to prove Binance is draining the entire crypto industry.

His grudge with Binance stems from his public request for Binance to list the token, which was not approved. Leonidas blasted Binance for demanding projects pay an extremely high proportion of the token supply (he claims up to ~10%) as a listing "fee," which Binance or insiders then allegedly dump in large quantities, causing projects and retail investors to suffer heavy losses.

Leonidas directly calls CZ the "biggest scammer in crypto history" and "the biggest scammer in human civilization history." He believes that although CZ has ostensibly stepped down as CEO, he still holds 90% of Binance's shares, making Binance his "proxy tool." Every post by CZ is interpreted by Leonidas as hypocritical because, in his view, CZ "extracts from the market" through Binance while preaching inspirational messages to retail investors. In his opinion, Binance's subsequent $283 million compensation to users precisely proves its direct responsibility, stating, "Only guilty companies pay that much money."

Thus, it appears there is a direct project-level interest conflict between Leonidas and Binance, and his emotional expressions are clearly mixed with personal grievances. Simultaneously, he represents a group long dissatisfied with the power structure of CEXs.

"Competitor" Enters the Fray: Star's Systemic Risk Accusations

The one who truly escalated the conflict was OKX founder Star (Xu Mingxing). He pointed out that after 1011, the microstructure of the crypto market underwent fundamental changes, with its destructiveness even exceeding that of FTX's collapse. He believes the core trigger was Binance's user growth campaign—offering a 12% annualized yield for USDe and allowing it to enjoy the same collateral treatment as USDT and USDC, but lacking sufficient restrictions.

In his view, USDe is essentially closer to a "tokenized hedge fund" rather than a low-risk money market product like BlackRock's BUIDL. Lured by yields, users swapped stablecoins for USDe, creating implied returns of 24%–70% through looped borrowing, causing systemic risk to accumulate rapidly in a short time. When volatility truly arrived, the depegging of USDe, combined with risk management flaws in WETH and BNSOL, amplified the impact, with some asset prices once approaching zero.

Star emphasized that his intention was not to attack Binance but to urge the industry to face real problems; as the world's largest platform, Binance should prioritize stability and transparency, not mask risks with high-leverage marketing.

But the reality is that as one of Binance's main competitors, OKX has long been overshadowed by Binance. As the helmsman of OKX, it's reasonable for Star to highlight OKX's "compliant and user-oriented" image and weaken Binance's market monopoly in his statements.

Facing Star's accusations, both sides naturally engaged in a war of words. However, more interestingly, both CZ and He Yi were once employees under Star. While online relations are tense, offline they maintain subtle industry ties. He Yi even posted a "friendly" photo with Star from December, mentioning they had privately discussed "poaching" (Binance poached a product manager from OKX) but had not discussed the 1011 incident, dripping with sarcasm.

CZ Unfollows Toly, Another Undercurrent of Public Chain Competition?

Another highlight of this crusade was CZ unfollowing Solana co-founder Anatoly Yakovenko's X account. The reason was Toly reposting Star's tweet criticizing Binance, adding a meaningful comment: "Only 18 months after the accident to recover." This implied that Solana (SOL) took 18 months after the FTX crash to return to its 2021 bull market levels, and now Binance is being implicitly likened to a similar "accident" responsible party. Toly's move was tantamount to indirectly siding with the criticism of Binance.

Some crypto users began to worry: Will it become harder for Solana ecosystem tokens, especially meme coins, to get listed on Binance in the future?

Behind this lies the direct competition between BSC and Solana for meme liquidity. The former is making a full push to capture the new wave of meme narratives, while the latter was once the most important incubator for this trend. The rivalry between public chains may be quietly emerging in this public opinion battle.

The Support Faction: Truth or PR?

Perhaps due to Binance's long-term maintenance of KOL relationships, the attitude towards Binance in the Chinese-speaking circle is relatively mild. However, facing these serious accusations, few major KOLs dare to publicly support Binance. Among them, EnHeng, dubbed the "Binance Crown Prince," is one. (Supplementary reading: Post-05 Crypto Enthusiast EnHeng: "Binance Crown Prince" is Just My Camouflage.)

Currently, support for Binance comes more from relatively neutral analysts. For example, trader Benson pointed out that Binance does bear responsibility, but USDe was not the starting point of the crash. Looking at the timeline, when the market bottomed at 5:20, USDe was only slightly depegged; the real drop to 0.65 occurred after the rebound.

He believes the more abnormal aspect was the large-scale price dislocation between Binance and other exchanges between 5:18 and 5:20: half of the tokens hit the lowest prices across all markets on Binance, with some deviations as high as 100%, and USDT pairs were significantly lower than USD pairs. He argues that, reasoning backward from the outcome, it's more likely that Binance had a system-level issue rather than being solely caused by market makers withdrawing liquidity. He calls for using Binance's published review as an opportunity for the industry to have a more thorough, public discussion of the event.

Dragonfly Managing Partner Haseeb Qureshi holds a similar view. He believes the narrative that "Binance and Ethena caused the crash" is difficult to substantiate in terms of timeline, market transmission path, and evidence. He points out that Bitcoin's price had already bottomed about 30 minutes before USDe showed anomalies on Binance, clearly reversing the causality. Simultaneously, USDe price deviations only occurred on Binance and did not spread to other trading platforms, unable to explain the large-scale liquidations across the entire market. This is fundamentally different from events like Terra that caused global balance sheet shocks. In fact, regarding the USDe depeg, Haseeb had already provided an interpretation shortly after the 1011 incident. For details, refer to Ethena Investor Dragonfly: USDe Did Not Depeg, It Was Just Binance's "Localized Price Dislocation".

In his view, a more reasonable explanation is the叠加 of multiple factors: Trump's tariff remarks disturbing the market on Friday evening, Binance API anomalies preventing market makers from cross-platform hedging, liquidation and ADL mechanisms amplifying volatility, and the crypto market's lack of traditional finance-style circuit breakers and self-stabilizing mechanisms, ultimately causing the market to evolve along an unfavorable path. He emphasizes that there is no simple, conspiratorial "single culprit" for 10/11. Although the market suffered heavy damage, it was not permanently destroyed in the long term, only requiring time to repair liquidity and confidence.

After Haseeb expressed support for Binance, CZ reposted the tweet, captioning it, "Dragonfly was once one of OKX's largest investors." However, Star later denied this in a response, stating Dragonfly never invested in OKX, whether small or large.

SAFU Adjustment: Remediation or Signal?

Amid the spread of Binance FUD, on January 30th, Binance announced in an "Open Letter to the Crypto Community" that it would adjust the asset structure of the SAFU Fund, gradually converting the original $1 billion stablecoin reserve into a Bitcoin reserve, with plans to complete the conversion within 30 days of the announcement. Binance will conduct regular reviews of the SAFU Fund's asset size. If the fund's market value falls below $800 million due to Bitcoin price fluctuations, Binance will supplement it with Bitcoin to restore the fund size to $1 billion.

However, regarding the specific method of purchasing this $1 billion worth of BTC, Binance did not specify in the announcement. Odaily has inquired with Binance on this matter but has not yet received a response.

Conclusion

Looking back at this debate, the reason Binance has become the focus again may not just be because it "did something wrong," but because it has grown large enough that any structural issue will first manifest on its platform.

This is not the first crusade Binance has faced, and it likely won't be the last. What truly matters is not just how responsibility for the incident is assigned, but whether, as an industry hub, leading exchanges are willing to shoulder a higher level of stability responsibility.

In a market still highly reliant on leverage, sentiment, and narrative-driven dynamics, the debate itself may be more important than the outcome.