Tom Lee: The crash on October 11th was caused by an abnormal drop in USDE on a certain trading platform, triggering automatic liquidation.

According to Mars Finance, on November 23, Tom Lee, in an interview with CNBC, explained the crypto market crash on October 11 by stating: "The crypto market has a lot of automated processes. ADL (Automatic Deleveraging) is a prime example—when the price of a user's account assets or collateral falls, the system triggers forced liquidation like a margin call in traditional markets. While USDE maintained a price of $1 on other exchanges, one exchange's internal quote plummeted to $0.65. Due to insufficient liquidity on that exchange, the ADL mechanism was triggered, leading to the automatic liquidation of a large number of accounts. This chain reaction eventually spread throughout the market. As a result, tens of thousands of crypto accounts were wiped out within minutes—even though they were profitable just moments before." Essentially, this was a systemic risk caused by a code vulnerability: the exchange, which should have collected cross-platform price data to set stablecoin valuations, mistakenly relied on its internal pricing system. This incident resulted in a significant reduction in the capital of market makers and trading institutions. More seriously, when shrinking trading volume triggers a gradual decline in cryptocurrency prices, these institutions need to prepare more capital to maintain operations, forcing them to further shrink their balance sheets—a vicious cycle that continuously erodes the market's foundation. The 2009 crisis was essentially caused by the loss of control over real estate and subprime mortgage collateral. While Wall Street established mechanisms like CDOs to address this, the ensuing over-regulation had negative consequences. Now, the vulnerabilities in the ADL code and the flaws in the pricing mechanism in the crypto space will eventually be corrected. Fortunately, we will not repeat the mistakes of over-regulation, but we must confront the impact of liquidation mechanisms. The eight-week-long liquidation of 2022 is still fresh in our minds; this is the essence of DeFi: code inevitably contains vulnerabilities, and leverage is the real source of risk. Investors should not abuse leverage in the crypto market.