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

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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 reality, it is a structural normality where derivatives dominate the marginal price market.

Margin calls and forced liquidations are more like cyclical fees imposed 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, open interest has rebounded from the deleveraging lows of 2022-2023. On October 7, Bitcoin’s nominal open interest reached $235.9 billion (at the same time, Bitcoin’s 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, forced liquidations exceeded $19 billion, 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 market-neutral strategies to fail. The long-tail markets are hit hardest, with Bitcoin and Ethereum plunging 10%-15%, and most small assets’ perpetual contracts crashing 50%-80%, creating a vicious cycle of “liquidation - price drop - re-liquidation.”

Exchange concentration further exacerbates risk spread. The top four platforms, including Binance, account for 62% of global derivatives trading volume. In extreme conditions, risk reduction and similar liquidation logic across these platforms trigger 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 widening price gaps.

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

The 2025 crisis has not yet triggered a chain of defaults but has exposed the structural limitations of reliance 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 10/11 incident may repeat.