What does the full-year settlement of $150 billion in derivatives mean for the market?

Author: Blockchain Knight

CoinGlass data shows that the forced liquidation amount in the cryptocurrency derivatives market will reach $150 billion in 2025. On the surface, this appears to be a crisis throughout the year, but in fact, it is a structural normality where derivatives dominate the marginal price market.

Margin calls and forced liquidations are more like cyclical fees levied on leverage.

Against the backdrop of a total derivatives trading volume of $85.7 trillion for the year (averaging $264.5 billion daily), liquidations are merely a market byproduct, stemming from a price discovery mechanism dominated by perpetual swaps and basis trading.

As derivatives trading volume rises and open interest rebounds from the deleveraging lows of 2022-2023, on October 7, the nominal open interest in Bitcoin reached $235.9 billion (during which Bitcoin price once touched $126,000).

However, record-breaking open interest, crowded long positions, and high leverage on small and mid-sized altcoins, combined with the global risk-off sentiment triggered by Trump’s tariff policies on that day, caused a market turning point.

Between October 10-11, over $19 billion in forced liquidations occurred, with 85%-90% being long positions. Open interest decreased by $70 billion within days, falling to $145.1 billion by the end of the year (still higher than at the start).

The core contradiction behind this volatility lies in the risk amplification mechanism. Conventional liquidations rely on insurance funds to absorb losses, but in extreme market conditions, the automatic deleveraging (ADL) emergency mechanism can inversely amplify risks.

When liquidity dries up, ADL triggers frequently, forcibly reducing profitable short and market maker positions, causing the failure of market-neutral strategies. The long-tail markets are hit hardest, with Bitcoin and Ethereum dropping 10%-15%, and most small assets’ perpetual contracts plunging 50%-80%, creating a vicious cycle of “liquidation - price drop - further liquidation.”

Concentration among exchanges exacerbates risk spread. The top four platforms, including Binance, account for 62% of global derivatives trading volume. During extreme conditions, risk reduction and similar liquidation logic lead to concentrated sell-offs.

Additionally, infrastructure pressures on cross-chain bridges, fiat channels, and other facilities hinder cross-exchange fund flows, causing cross-exchange arbitrage strategies to fail and further widening price gaps.

Of course, the $150 billion in annual liquidations does not symbolize chaos but records the risk mitigation efforts in the derivatives market.

The 2025 crisis has not triggered a chain of defaults yet but has exposed the structural limitations of relying on a few exchanges, high leverage, and certain mechanisms. The cost is the centralization of losses.

In the new year, we need more healthy mechanisms and rational trading; otherwise, the events of 10/11 may repeat.