The massive crypto crash in October wiped out market makers and marked the end of an era where traders could generate easy profits, according to crypto exchange BitMEX.
Between Oct. 10 and 11, the market lost $20 billion in what BitMEX called “the most destructive event for sophisticated market makers in crypto history,” as detailed in its State of Crypto Perpetual Swaps in 2025 report released Thursday.
A feedback loop of auto-deleveraging—where exchanges liquidate leveraged positions to protect themselves—undermined market makers’ “‘safe’ delta-neutral strategies.” This forced them to withdraw liquidity, leaving order books at multi-year lows.
“For years, perpetual swaps offered easy alpha: farm the funding, capture the spread, and rely on the exchange to maintain the walls,” the report said. “That era of easy yield and structural stability appears to have ended in 2025.”
Order books thinnest since 2022
Market makers, who provide liquidity by hedging positions against tokens, were left exposed when auto-deleveraging closed their short hedges during the crash. They ended up holding “naked spot bags in a free-falling market.”
“This breach of the ‘neutrality’ promise led market makers to pull liquidity globally in Q4, resulting in the thinnest order books seen since 2022,” BitMEX noted.
BitMEX said the strategy of arbitraging between spot and futures markets “has become overcrowded,” with funding rates dropping to 4%, “killing the funding rate trade” and leaving it underperforming Treasury bills.
Market makers diverge as users shift to on-chain perps
Last year, the market also split between “fair matchers” and “predatory B-Book exchanges,” BitMEX noted. On B-Book platforms—where the exchange itself acts as the counterparty—trades could be voided under “‘abnormal trading’ clauses,” allowing the platform to profit at users’ expense.
“It became clear that aggressive B-Book operations were taking the other side of user trades and refusing to pay out when they lost,” BitMEX said.
The report also highlighted a sharp migration of trading volumes to high-performance on-chain perpetual DEXs like Hyperliquid. However, BitMEX warned that decentralization alone does not prevent market manipulation.
The launch of the Plasma (XPL) token in September provided attackers with a “liquidation map,” allowing illiquid pre-launch tokens with no price oracle to be manipulated to trigger liquidations on on-chain perp positions.
BitMEX argued that this episode “demonstrated that on-chain transparency cannot protect users as effectively as credible centralized exchanges.”
“The failure of unproven, high-risk platforms has cleared the way for battle-tested exchanges and genuine innovations to thrive,” the report concluded.
