The crypto landscape shifted fundamentally following the massive market crash of October 2025. According to a recent “State of Crypto Perpetual Swaps” report from BitMEX, the $20 billion wipeout between October 10 and 11 didn’t just hurt retail investors—it decimated the sophisticated market makers (MMs) who provide the liquidity that keeps the industry running.
For years, traders relied on “delta-neutral” strategies, essentially hedging their bets to harvest funding rates and capture spreads with minimal risk. BitMEX argues that this “safe” era of easy money has officially ended, replaced by a market that is thinner, more volatile, and increasingly wary of the structural mechanics that previously guaranteed stability.
How the ‘Liquidation Spiral’ Broke Delta-Neutral Trading
The primary driver of the collapse was a feedback loop involving auto-deleveraging (ADL). In a standard market, market makers stay “neutral” by holding an asset while simultaneously shorting it. However, when the October crash hit, exchange engines began forcibly closing those profitable short positions to cover the losses of bankrupt accounts.
This left market makers holding “naked” assets in a free-falling market without their hedges. This breach of neutrality forced MMs to pull their liquidity globally to avoid total insolvency. The result? Crypto order books reached their thinnest levels since 2022. When liquidity vanishes, price swings become more violent, making it harder for institutional players to enter or exit positions without moving the market against themselves.
The Death of the Funding Rate Trade and the Rise of Predatory Exchanges
Beyond the technical failures of the crash, the “yield” itself is disappearing. BitMEX points out that the popular strategy of arbitraging between spot and futures markets has become overcrowded. With funding rates dropping to roughly 4%, these trades are now underperforming traditional U.S. Treasury bills. For many sophisticated desks, the risk of a crypto exchange failure is no longer worth a return that is lower than “risk-free” government debt.
The report also highlights a growing divide in how exchanges treat their users. BitMEX categorizes the current market into two camps:
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Fair Matchers: Exchanges that act as neutral venues for buyers and sellers.
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Predatory B-Book Exchanges: Platforms that act as the counterparty to their users and use “abnormal trading” clauses to void trades when the user actually wins.
BitMEX further warned that moving to decentralized finance (DeFi) isn’t a magic fix. They cited the Plasma (XPL) token launch in September as a prime example of how on-chain transparency can be weaponized. In that instance, attackers used the public “liquidation map” to manipulate illiquid tokens and trigger forced liquidations on-chain. According to BitMEX, this proves that “battle-tested” centralized exchanges still offer a level of protection that unproven decentralized platforms cannot yet match.
