A Second Deleveraging Wave Hits Crypto as Exchanges Buckle Under the Selloff

Bitcoin fell roughly 30% and Ethereum roughly 44% in a sharp downturn that froze several centralized exchanges and pushed gas fees on decentralized exchanges to thousands of gwei. Whether the trigger was regulatory pressure out of China or commentary from Elon Musk remains debated, though the meteoric rise and fall of dog-themed meme tokens had already been flagged by some as a classic market-top signal.

Data compiled by one observer put total liquidations across the crypto market at roughly $8.8 billion for the day. It wasn't only leveraged spot and futures traders caught out — DeFi users who had leveraged positions through yield farming were liquidated in much the same way, even if the framing felt less overtly speculative.

Julien Bouteloup pointed to Layer 2 usage as a specific aggravating factor in the chaos:

One pattern that I've seen a lot from people using bridges. User lends into L1, borrows assets, sets liquidation ratio around 1.5 and then bridges those assets into L2.

The gas gets insane, they are stuck on L2 and they get liquidated on L1.

Coinbase, Bitfinex, Binance, Kraken, Gemini, and Huobi all reported strain, with several halting trading or restricting withdrawals on certain chains during the worst of it. Ethereum itself, despite becoming prohibitively expensive to use, kept processing transactions as designed throughout.

Despite the turmoil, underlying DeFi activity held up: Curve processed about $1.4 billion in volume and Uniswap close to $6 billion on the day. Even traders who had lived through previous crashes described this one as unusually severe, though it remains unclear whether it marks a genuine trend reversal or just a temporary cooling-off, as covered in an earlier look at the first such crash a few months prior.

The underlying fundamentals were largely unchanged by the crash — DEX volumes kept climbing, development continued, and builders' roadmaps went ahead unaffected. As one commentator put it, it's typically short-term speculators who absorb the worst of pullbacks like this, while projects generating genuine value tend to weather them better.

That said, even projects branding themselves around safety weren't immune to bad actors: the "WARONRUGS" account, ostensibly devoted to calling out scams, itself turned out to be a rug pull — a irony not lost on observers, even if it's not the kind of low-quality project that typically merits coverage.

Separately, MetaMask reported its user base had grown fivefold over the preceding six months, meaning this crash was likely the first serious downturn many of its roughly 5 million monthly users had experienced in crypto. Across the market, holders sitting on losses were left deciding whether to exit entirely or treat the experience as a lesson before continuing.