Derivatives total annual settlement of 150 billion, is this good or bad for the market?

In 2025, the total forced liquidation amount in the cryptocurrency derivatives market reached $150 billion. On the surface, this appears to be a crisis, but in reality, it is a structural normality dominated by derivatives in the market. The liquidation events in October exposed high leverage risks and market concentration issues, highlighting the importance of healthy mechanisms and rational trading.
(Background: From “Trading Psychology Analysis” to understand the market essence: a numerical game of patterns and probabilities)
(Additional context: Glassnode co-founder: Bitcoin “hedge selling” pressure has eased, and the market will return to the supply-demand price discovery mechanism)

In the new year, we need more healthy mechanisms and rational trading; otherwise, the 1011 incident will repeat. CoinGlass data shows that in 2025, the forced liquidation amount in the cryptocurrency derivatives market reached $150 billion. While this seems like a crisis for the entire year, it is actually a structural normality in the marginal price market dominated by derivatives.

Forced liquidations due to insufficient margin are more like periodic fees levied on leverage.

Against the backdrop of a total derivatives trading volume of $85.7 trillion for the year (daily average of $264.5 billion), liquidations are merely a byproduct of the market, stemming from a price discovery mechanism led by perpetual swaps and basis trading.

As derivatives trading volume rises, open interest rebounded from the leverage lows of 2022-2023. On October 7, Bitcoin’s nominal open interest reached $235.9 billion (at the same time, Bitcoin’s price once touched $126,000).

However, record-high open interest, crowded long positions, and high leverage on small and mid-sized altcoins, combined with the global risk-off sentiment triggered by Trump’s tariff policies on that day, caused a market turning point.

Between October 10-11, over $19 billion in forced liquidations occurred, with 85%-90% being long positions. Open interest decreased by $70 billion within days, falling to $145.1 billion by the end of the year (still higher than at the start).

The core contradiction behind this volatility lies in the risk amplification mechanism. Regular liquidations rely on insurance funds to absorb losses, but in extreme market conditions, the auto-deleveraging (ADL) emergency mechanism can inversely amplify risks.

When liquidity dries up, ADL triggers frequently, forcibly reducing profitable short and market maker positions, causing the failure of market-neutral strategies. The long-tail markets are hit hardest, with Bitcoin and Ethereum plunging 10%-15%, and most small assets’ perpetual contracts collapsing 50%-80%, creating a vicious cycle of “liquidation – price drop – further liquidation.”

Market concentration among exchanges exacerbates risk spread. The top four platforms like Binance account for 62% of global derivatives trading volume. During extreme conditions, risk is simultaneously reduced across platforms, and similar liquidation logic triggers concentrated sell-offs.

Additionally, infrastructure pressures from cross-chain bridges, fiat channels, and other facilities hinder fund flows across exchanges, causing cross-exchange arbitrage strategies to fail and widening price gaps further.

Of course, the $150 billion in annual liquidations does not signify chaos but records the risk-avoidance in the derivatives market.

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

In the new year, we need more healthy mechanisms and rational trading; otherwise, the 1011 incident will repeat.