What Exchange Liquidity Reveals Under Stress
On Oct. 10, 2025, crypto went by its largest liquidation occasion in historical past. In simply 25 minutes, $19 billion in leveraged positions had been worn out. Bitcoin dropped from $126,000 to $105,000. Ethereum fell 12%. Some altcoins misplaced greater than half their worth in a single day.
What many individuals missed was not the value transfer, however what occurred contained in the order books.
Exchanges had been nonetheless reporting large buying and selling quantity. Yet many merchants couldn’t execute anyplace close to the costs they had been seeing on their screens. Depth vanished, and spreads exploded. Liquidity that usually absorbs giant trades merely disappeared.
Volume confirmed exercise. Liquidity confirmed actuality.
The Volume Illusion
For years, the business has used quantity as a proxy for alternate high quality. Higher quantity is assumed to imply higher liquidity and higher execution.
October proved how deceptive that assumption is.
Research has proven that in some unregulated venues, 70 to 95% of reported quantity can come from wash buying and selling. Even on respectable exchanges, giant turnover doesn’t assure that actual orders are sitting near the mid worth if you want them.
During the October crash, perpetual futures quantity stayed high whereas executable depth collapsed by greater than 98%. What merchants noticed was compelled liquidations racing by almost empty books. That created the phantasm of liquidity, whereas in actuality nearly nothing was obtainable to commerce in opposition to.
If you had been counting on quantity to evaluate execution high quality, you discovered the laborious approach that day. A extra dependable method is to test assets-under-management rankings and commerce solely on exchanges with clear, verifiable Proof of Reserves. These metrics reveal precise capital dedication reasonably than manufactured exercise.
What Stress Actually Exposes
Real liquidity solely turns into seen when markets are beneath strain. Three issues matter excess of headline quantity.
Depth close to the mid worth. This tells you the way a lot you’ll be able to commerce with out shifting the market. During regular circumstances, liquid pairs usually have significant measurement inside 10 to 25 foundation factors of mid. On October 10, that depth collapsed, leaving merchants dealing with worth impression of 1% to three% on trades that might usually barely transfer the guide.
Spread stability. When market makers step again, spreads widen. On that day, Bitcoin perpetual spreads blew out to roughly 26 foundation factors, greater than 1,200 instances wider than normal.
Slippage. This is what merchants really really feel. It combines each unfold and lacking depth. Even small market orders had been leaping a number of worth ranges as they consumed what little liquidity remained.
All of this occurred on exchanges reporting file quantity. The difficulty was not exercise. It was capability.
Fragmentation Makes the Problem Worse
Crypto liquidity in 2025 is scattered. Roughly 80% sits on centralized exchanges. The relaxation lives on decentralized protocols. Within every class, it’s break up throughout dozens of venues.
On paper, world liquidity appears monumental. In apply, merchants solely work together with the native order guide of the venue they’re utilizing. If that venue’s market makers pull again throughout stress, it doesn’t matter how a lot liquidity exists elsewhere.
The October crash made this painfully clear. Some exchanges stored functioning. Others noticed liquidity nearly fully disappear. The distinction was not quantity, it was the standard of their market maker relationships and their potential to maintain quotes dwell when danger spiked.
How Real Execution Quality Is Built
At Phemex, we constructed our Retail Price Improvement system for precisely these moments.
RPI is a maker-only liquidity layer that interacts solely with non-algorithmic retail stream. By separating retail merchants from high-frequency methods, liquidity suppliers can quote tighter costs with out worrying about being picked off by quicker merchants.
After the December 2025 improve, depth inside ±0.1% of mid-price reveals:
- BTCUSDT at 2× business benchmarks
- ETHUSDT at 5× common market liquidity
- SOLUSDT at 5.5× top-tier alternate requirements
- Across our high 12 pairs, about 3× baseline depth
These numbers matter as a result of they signify executable liquidity, not simply reported turnover.
Keeping liquidity within the guide throughout volatility isn’t just about software program. It requires market maker commitments, danger methods that permit them handle stock, and incentives tied to staying energetic when circumstances deteriorate.
What This Means for Traders
As crypto turns into extra fragmented, the hole between quantity and actual execution high quality will solely develop.
On-chain perpetuals almost tripled in open curiosity in 2025. DEX volumes hit new records. Liquidity is all over the place, however hardly ever in a single place if you really want it.
For merchants, meaning wanting past quantity. What issues is depth at your commerce measurement, unfold behaviour throughout current volatility, and whether or not the venue has a observe file of staying liquid when markets are burdened.
For exchanges, it means competing on execution infrastructure as an alternative of selling numbers. This method additionally permits us to function transparently as an A-book venue, the place all trades are routed to actual liquidity suppliers, versus many more recent exchanges that function B-book fashions.
Bottom Line
The October liquidation occasion erased $19 billion in positions. But the deeper lesson was structural.
When markets had been calm, quantity regarded spectacular. When markets broke, it informed you nothing about whether or not you can commerce.
Depth, spreads, and slippage informed the reality.
Exchanges can both construct for that actuality, or look forward to the following stress occasion to show the distinction.
We selected to construct.
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