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Crypto’s October 10 flash crash saw an estimated $19 billion in liquidations and wiped out $450 billion in market capitalization. Much has been written about the chaos and what worsened the cascade—high leverage, thin liquidity and stablecoin depegging—so I am not going to rehash it all for you here. What’s clear is that the market’s infrastructure did not pass this stress test.
The problem, however, starts with how crypto markets operate in general. Most retail and institutional traders use the same exchanges that not only match buy and sell orders but also act as liquidity providers and custodians. This all-in-one setup creates convenience for users and outsized profits for exchanges that capture value across the entire trade lifecycle.
But in a crisis, this convenience becomes a liability. When you trade on Binance, for example, your funds are usually held in Binance’s custody. If the exchange experiences downtime or freezes withdrawals, your assets become effectively trapped.
“The idea that this captive, vertically integrated business model is the future of institutional trading is false, and last weekend really spotlighted that fact,” says Brandon Mulvihill, cofounder and CEO of digital asset trading firm Crossover Markets. “There’s real systemic risk when these exchanges go down. Whether participants are makers or takers, they can only get out of that risk once the exchange comes back online. The separation of duties matters.”
Another key factor to consider is pricing. Unlike stocks, which trade on regulated and highly liquid exchanges equipped with built-in safeguards, crypto assets move across a patchwork of loosely connected venues with varying liquidity and inconsistent trade execution.
As traditional equities slid into the close and after-hours sessions on October 10, intraday data revealed a growing disconnect between digital assets and the NSADAQ-100. Bitcoin and dogecoin saw far steeper intraday swings than major stock benchmarks, according to digital asset analytics firm Kaiko, underscoring how crypto markets still trail traditional exchanges in risk controls and market stability.
The silver lining here is that the crash will likely accelerate a shift that was already underway, part of which is smart money moving from exchanges to over-the-counter (OTC) desks that aggregate liquidity from multiple sources, creating a buffer against a liquidity crunch on any one venue. Just in 2024, the crypto OTC market grew 106%, according to a report from Finery Markets.
The shift’s also creating an opportunity for firms like Mulvihill’s, which has built what he calls crypto’s first true electronic communication network (ECN), a system that automatically matches buy and sell orders by connecting major brokerages and institutional traders without a centralized exchange layer.
Mulvihill says one of the world’s largest marker makers has actually approached his firm in the October 10 aftermath, and that Crossover has been growing about 100% every six months to a 100-strong institutional client base.
Ultimately, this could mark the emergence of a new and important layer for crypto trading. “We’re creating what we would normally call an inter-bank or inter-dealer market,” adds Mulvihill. “ This provides fungibility and a separation of duties that ultimately collapse the cost of trade.”
