Tom Lee: The big dump on 10.11 was caused by an abnormal fall of USD on a certain platform, which triggered automatic liquidation.

On November 23, Tom Lee, in an interview with CNBC, explained to the host why the crypto market experienced a big dump on October 11: “The crypto market has a large number of automated processes. Among them, ADL (automatic deleveraging mechanism) is a typical representative - when the user's account assets or collateral price falls, the system will trigger liquidation like the margin call in traditional markets. While USDE maintained a $1 price on other platforms, the internal quote on a certain platform plummeted to $0.65. Due to the lack of liquidity on that platform, the ADL mechanism was triggered, leading to a large number of accounts being automatically liquidated, and this chain reaction eventually spread to the entire market. Because of this, tens of thousands of crypto accounts were wiped out in minutes - even though they were profitable just a moment ago.” Essentially, this is a systemic risk caused by code vulnerabilities: the trading platform should have collected cross-platform price data to set stablecoin valuations but mistakenly relied on an internal pricing system. This incident led to a significant shrinkage of capital for market makers and trading institutions. More seriously, when the volume shrinks and causes coins to show downward movement, these institutions need to prepare more capital to maintain operations, forcing them to further shrink their balance sheets - it’s like a vicious cycle that continuously erodes the foundation of the market. The essence of the 2009 crisis was the loss of control over real estate and subprime loan collateral; Wall Street established mechanisms like CDOs to cope, but the ensuing over-regulation caused negative effects. Today, the ADL code vulnerabilities and flaws in the price mechanism in the crypto field will also eventually be corrected. Fortunately, we will not repeat the mistakes of excessive regulation, but we must face the impact brought by the clearing mechanism. The massive liquidation that lasted for eight weeks in 2022 is still fresh in our minds; this is the essence of DeFi: code will inevitably have vulnerabilities, and leverage is the real source of risk. Investors should not abuse leverage in the crypto market.