In a single day, over $9.55 billion in open interest was erased from crypto markets.
According to CoinGlass data, this included $8 billion in long positions and $1.55 billion in shorts. The largest liquidations hit Bitcoin and Ethereum — over $2.6 billion combined — as the market plunged violently following new U.S. tariffs on China.

Prices fell off a cliff. Bitcoin crashed from above $122,000 to nearly $102,000 before clawing back. Over 1.5 million traders were liquidated in 24 hours. Exchanges like HTX saw individual positions worth $87 million wiped out in seconds.

What looked like a geopolitical headline about trade and tariffs became, in practice, one of the most violent deleveraging events in crypto history — and a reminder of how volatility is monetized.

While millions were wiped out, a single whale reportedly profited around $190 million shorting BTC and ETH on Hyperliquid. That’s the other side of the same coin: when markets panic, someone’s liquidity crisis becomes another’s opportunity.

These events aren’t new. Markets have always been prone to panic, leverage, and overreaction.
In October 1987, the Dow Jones collapsed 22% in a single day, the largest one-day drop in history. The 2010 “Flash Crash” saw nearly a trillion dollars erased from U.S. equities in minutes, only to recover within hours.

The cause? Automated systems and leveraged exposure feeding on themselves.
When algorithms sell into falling markets, they accelerate the decline, triggering margin calls and stop-losses that cause even more selling. Feedback loops, amplified by speed and leverage, create what physicist Didier Sornette once called “critical points” — moments when markets behave like physical systems collapsing under pressure.

After 1987, regulators introduced circuit breakers — temporary trading halts designed to interrupt these feedback spirals. They’re not perfect, but they slow things down enough for human judgment to re-enter the equation.

Crypto, on the other hand, doesn’t believe in circuit breakers.
It’s a market with no pause button, no central clearing house, and no timeouts. When liquidation thresholds are hit, smart contracts execute automatically. It’s pure market physics — fast, transparent, and merciless.

To understand the business of volatility, you must understand the mechanics of liquidation.

Leverage creates fragility. In crypto, traders often borrow against their assets, using Bitcoin, Ether, or stablecoins as collateral. When prices drop, the value of that collateral declines. If it falls below a critical ratio, liquidation bots automatically sell the position to cover the debt.

Each forced sale pushes prices slightly lower, triggering more liquidations, which push prices lower again.
This negative feedback loop — leverage feeding on itself — is what transforms a normal correction into a full-blown cascade.

In centralized exchanges, this process happens inside proprietary engines. In DeFi, it’s all on-chain. Protocols like Aave, Maker, or Compound execute these liquidations transparently, and anyone can see the liquidation thresholds in real time. That transparency creates its own form of competition — liquidation bots racing to claim the collateral first, and opportunistic traders positioning themselves ahead of key triggers.

When the market finally hits its breaking point, only algorithmic buyers — market makers and quant strategies — can react fast enough to scoop up discounted assets. For everyone else, the move is already over.

Volatility becomes a profit function, not a byproduct.

In theory, volatility reflects uncertainty. In practice, it’s an entire industry.

• Exchanges earn more when volatility spikes — trading fees soar as volume explodes.

• Market makers capture wider spreads as liquidity evaporates.

• Quant funds thrive on mean reversion and high-frequency arbitrage.

• Options desks and volatility vaults extract premium from traders desperate to hedge.

Every flash crash, every liquidation event, every panic-driven move creates revenue.
It’s not chaos — it’s structured extraction.

This doesn’t mean the system is unfair by design. It means the incentives are asymmetric. Those who can react, hedge, or leverage information about liquidation thresholds have a structural advantage. Those who can’t — retail traders, fundamental investors — end up being the liquidity that others monetize.

Volatility has become an asset class of its own — one traded, engineered, and optimized by algorithms.

The uncomfortable truth is that modern markets — both traditional and decentralized — are built to reward speed, not conviction.

Long-term investors usually sit on the sidelines during violent crashes. They hold their positions, or worse, are forced to sell in panic. Meanwhile, volatility traders — armed with capital, bots, and precise data — extract billions in profits from short-term swings.

It’s a zero-sum game during those few hours: what some lose through liquidation, others gain through arbitrage.

And yet, the broader economy loses. Each cascade drains liquidity, erodes trust, and discourages long-term capital from staying in the market. Volatility may enrich a few, but it impoverishes conviction.

One of DeFi’s defining features is transparency — every position, collateral ratio, and liquidation level can be seen on-chain.

This is both empowering and dangerous.
On one hand, it allows sophisticated traders to monitor where the “liquidation walls” are — the precise price levels where massive forced sales will trigger. On the other hand, it gives those same traders a roadmap to push the market toward those levels.

When liquidity thins out, a single large sell order can nudge prices just enough to trigger cascading liquidations. Once the dominoes start falling, the self-reinforcing nature of leverage takes over.

For long-term investors, this transparency can feel like a trap — they can see the risk forming, but they lack the tools to act on it.
For algorithmic players, it’s a treasure map.

Not all volatility is bad. Markets need movement to find fair prices and allocate risk. The problem arises when volatility becomes extractive — when it serves mainly to transfer wealth from weaker hands to stronger algorithms.

This is the difference between volatility as price discovery and volatility as profit mechanism.

In extractive systems, the same volatility that clears leverage also drains productive capital. Instead of fueling innovation or supporting long-term projects, liquidity gets recycled through liquidation bots, arbitrage loops, and fee structures.

That’s the paradox: DeFi, the most open financial system ever built, still reproduces some of the extractive dynamics of Wall Street — just faster and with better transparency.

So the real question is: can we turn volatility into something constructive?

There are at least three promising directions:

Automated Market Makers (AMMs) distribute liquidity continuously across price curves. When deployed at scale, this makes it harder to move prices violently, since liquidity exists at multiple price levels. Expanding on-chain liquidity — particularly from long-term holders — could make markets more resilient and less prone to cascades.

Traditional “grid trading” systems, which buy incrementally as prices fall and sell as they rise, could be integrated into DeFi as automated vaults. This would allow everyday investors to accumulate assets during panic and sell into recovery — capturing the same volatility premium that market makers enjoy.

Imagine a new class of vaults that automatically deploy stablecoins into liquidity pools or structured products when volatility spikes. These “long-term volatility harvesters” could help investors earn from chaos rather than suffer from it, democratizing what has so far been an institutional edge.

Volatility is not going away.
But we can decide who benefits from it.

If long-term investors remain passive — holding but not participating in liquidity provision — then volatility will continue to be captured by high-frequency and extractive strategies.

If instead, they can lend their liquidity intelligently, earning fees and spreads during market stress, volatility can become a source of yield rather than destruction.

This shift requires infrastructure: transparent, composable, user-friendly systems that allow investors to automate their responses to volatility without becoming day traders. It’s about building resilience into the code itself.

The ultimate challenge for DeFi is not just transparency, but alignment.

We’ve built systems that make market mechanics visible — now we must build systems that make them fairer.
That means turning volatility from a weapon of extraction into a tool of participation.

Every crash is a stress test. Each shows the limits of leverage, liquidity, and human patience. But they also show something else: a massive, recurring transfer of capital that could, in a better-designed system, be shared among those who believe in the long-term value of the ecosystem.

Volatility is not the enemy. It’s the pulse of the market.
But like energy, it can be wasted or harnessed.

Markets evolve by learning. After 1987, equities built circuit breakers. After 2010, they built better safeguards against feedback loops.

Crypto is still in its adolescence — fast, open, and brutally efficient. Its challenge now is to evolve from transparency to intelligence: building systems that not only display risk, but also distribute opportunity.

The business of volatility will not disappear. But it can be redesigned.
If DeFi succeeds in doing that — turning volatility into a collective asset rather than a private advantage — it could transform market chaos into one of its most powerful engines of inclusion.

Volatility doesn’t have to be something that happens to us. It can be something we build with.

by Jesús Pérez