Jack Paul 
The scale of Friday’s market stress
Friday’s crypto market sell-off triggered what Bitwise portfolio manager Jonathan Man described as the worst liquidation event in crypto history. More than $20 billion evaporated from the market as liquidity vanished and forced deleveraging took hold. The numbers themselves were staggering, but perhaps what mattered more was the underlying market plumbing that either held or broke under pressure.
Man, who leads the Bitwise Multi-Strategy Alpha Fund, noted that bitcoin fell 13% from peak to trough in just one hour. The damage to long-tail tokens was far more severe—he mentioned that ATOM “fell to virtually zero” on some venues before eventually rebounding. The estimated $65 billion in erased open interest reset market positioning to levels last seen in July.
How exchanges managed the crisis
When uncertainty spiked, liquidity providers did what they typically do—they widened quotes or stepped back entirely to manage their inventory and capital. Organic liquidations stopped clearing at bankruptcy prices, and exchanges turned to their emergency tools. Auto-deleveraging kicked in at some venues, forcibly closing part of profitable counter-positions when there wasn’t enough cash on the losing side to pay winners.
Some mechanisms actually worked quite well. Man pointed to liquidity vaults that absorbed distressed flow, noting that Hyperliquid’s HLP “had an extremely profitable day” by buying at deep discounts and selling into spikes. These safety valves helped prevent a complete market collapse.
Centralized vs decentralized performance
Centralized venues saw the most dramatic dislocations as order books thinned, which explains why long-tail tokens broke harder than bitcoin and ether. The contrast with DeFi was striking. DeFi liquidations remained relatively muted for two main reasons: major lending protocols tend to accept blue-chip collateral like BTC and ETH, and protocols like Aave and Morpho “hardcoded USDe’s price to $1,” which limited cascade risk.
Though USDe remained solvent, it traded around $0.65 on centralized exchanges amid illiquidity. This created problems for users who had posted it as margin on those venues, leaving them vulnerable to liquidation.
Hidden risks and recovery patterns
Beyond directional traders, Man highlighted hidden exposures for market-neutral funds. He suggested that the real risks on days like Friday are operational—algorithms running properly, exchanges staying online, accurate marks, and the ability to move margin and execute hedges on time. He checked in with several managers who reported they were fine, but wouldn’t be surprised if “some c-tier trading teams got carried out.”
The dispersion across venues was unusually wide, with Man citing $300-plus spreads at times between Binance and Hyperliquid on ETH-USD. Prices did recover from extreme lows, and the positioning flush created opportunities for traders with available capital. With open interest down sharply, markets actually entered the weekend on firmer footing than the day before.
I think what’s interesting here is how different parts of the ecosystem responded to the same stress. Some mechanisms worked as intended, others showed their limitations. The recovery suggests the system has some resilience, though perhaps not as much as optimists might hope. The next test will be whether lessons from this event lead to meaningful improvements in market structure.