If a crypto exchange experiences technical glitches or a market maker pulls liquidity, exacerbating a flash crash, there are few legal avenues for traders to pursue. During the October 10 crypto crash, nearly twenty billion dollars in perpetual futures positions were liquidated, prompting questions about who should bear the financial burden if platforms fail under pressure.
Unlike regulated securities exchanges, cryptocurrency venues have the ability to pull liquidity, cut profitable positions, and often include arbitration clauses that limit legal recourse—provided users have agreed to the terms and conditions.
In the recent liquidation frenzy, Binance was at the center of controversy. Some users claimed they were unable to close their positions in time. While Binance stated that its core features remained operational, it acknowledged technical glitches that caused certain asset prices to temporarily appear depegged from the broader market.
Earlier this week, social media was rife with rumors that market maker Wintermute planned to sue Binance over losses sustained during the crash. However, these claims were swiftly denied by Wintermute’s CEO, Evgeny Gaevoy.