ACT flash crash horror night: When the exchange circuit breaker mechanism turns into a short selling bullet

Binance's regular contract rule adjustment accidentally uncovered the most vulnerable acne in the crypto market.

The flash crash of low-market-cap tokens such as ACT, which collectively halved in half an hour, put the fatal flaws of the exchange's risk control mechanism, market maker algorithm strategy and MEME coin ecology under the spotlight.

Although Binance responded urgently and blamed "big investors selling", the cliff-like evaporation of 75% of the contract holdings, the precise synchronization of multi-currency price fluctuations, and the mysterious operation of market maker Wintermute selling on the chain after the plunge, all exposed deeper industry risks in this Rashomon - in the current weak liquidity, the exchange's attempt to repair systemic risks may become the last straw that crushes the market.

Multiple tokens collectively halved in half an hour

At 15:32 on April 1, Binance issued an announcement on adjusting the leverage and margin ladder of multiple U-based perpetual contracts, involving several trading pairs such as 1000SATSUSDT, ACTUSDT, PNUTUSDT, NEOUSDT, and NEOUSDC. The content of this adjustment mainly adjusts the position limit and leverage margin ratio of contract transactions of these tokens. Taking ACT as an example, the maximum position limit before the adjustment was 4.5 million US dollars, and after the adjustment, it was reduced to a maximum of 3.5 million US dollars. The adjustment time shown in the announcement was 18:30.

At 18:30 on the same day, ACT fell from 0.1899 US dollars to 0.0836 US dollars in 36 minutes, a drop of 55%. It triggered heated discussions in the market.

Almost at the same time as ACT, TST, HIPPO, DEXE, PNUT and other low-market-cap tokens on Binance all experienced flash crashes to varying degrees, with the decline generally reaching between 20% and 50%. Market data shows that 18:30 became the starting point for the cliff-like decline in the prices of multiple tokens, and the scope of influence far exceeded that of a single project, showing obvious synchronization.

Specifically, this adjustment is that the maximum position size that can be held under the leverage multiple has become smaller. For example: before, you could hold tokens worth $1 million with a certain leverage, but now the rules have changed, and you may only be able to hold a maximum of $800,000. If the user does not actively close the position, the system will force the liquidation of the excess position at the market price when the rules take effect. Therefore, the contract price will fall sharply in a short period of time, which will then trigger a stampede.

In response to this, a lot of discussion has been triggered on social media. @terryroom2014 pointed out that "Binance contract holdings dropped sharply at 18:30, and the exchange took the initiative to cut off large positions, causing the price to collapse"; @yinshanguancha believes that "market makers were forced to close positions due to insufficient margin, and the rule adjustment was the fuse." Most users pointed the finger at Binance's rule adjustment, believing that the reduction of the position limit triggered forced liquidation, which in turn triggered panic selling and market stampede effects.

Some users also speculated that this was due to ACT's market makers actively smashing the market. @Web3Tinkle pointed out that ACT's holdings on Binance fell by 73 million US dollars in just 15 minutes, implying that the project party and the market maker instantly shipped and harvested the market.

In response, He Yi, co-founder of Binance, said during an interaction on the X platform that whether the ACT plunge was caused by Binance's modification of the contract rules, He Yi responded that "the team is pulling details and preparing a reply."

About 2 hours later, Binance released a preliminary investigation report on the incident, which stated that the decline in ACT was mainly due to the sale of about $1.05 million in spot tokens by three VIP users and one non-VIP user in a short period of time, which caused the price to fall and led to the decline of other tokens. In summary, Binance's response believes that the main reason for this short-term plunge is the sell-off of large investors, not the adjustment of Binance rules.

Is the exchange risk control "overcorrected" or is the market maker clearing its position to protect itself?

This market crash reminds people of the lightning attack on Hyperliquid that happened not long ago. On March 26, the decentralized exchange Hyperliquid encountered a trader who used a loophole in the liquidity design to dump a huge short order to the platform by withdrawing the margin, which almost caused a loss of more than 10 million US dollars in the Hyperliquid vault.

Perhaps warned by the Hyperliquid incident, Binance tried to control risks by reducing the contract parameters of low-market-value tokens, but it never thought that it would detonate the mines of the market in advance.

In addition to Binance's rule adjustment, which seems to be the trigger, market maker Wintermute is also suspected to be the initiator behind it. On the one hand, the market maker group is the most affected by Binance's adjustment of the rules. @CnmdRain analyzed, "This adjustment has a particularly large impact on market makers (MM) because they usually rely on high leverage and large positions to maintain market liquidity and earn spread profits."

Previously, according to Yu Jin's speculation, Wintermute may be the market maker of ACT (it received 9.482 million ACT tokens from the ACT community wallet in November 2024), and after the ACT plummeted, Wintermute withdrew multiple ACT tokens from the Binance exchange and sold them on the chain.

In response, Wintermute founder Evgeny Gaevoy responded that the company did not participate in the leading operation of the plunge of Meme coins such as ACT, and only arbitraged the AMM fund pool after the price fluctuated violently. He stressed that Wintermute was not responsible for the market fluctuations and is currently paying attention to the subsequent development of the incident.

Faced with this uproar, the ACT project also responded, saying that it has launched an investigation and is working with relevant parties to deal with it, and is working with trusted partners to develop a response plan.

Can the evaporation of 75% of holdings be explained by "big investors selling"?

So far, the parties involved in this flash crash seem to have responded at the first time and cleared themselves of their responsibilities. But there are still many questions.

First, Binance's preliminary investigation report does not seem to be convincing. Binance's investigation report stated that the decline of ACT tokens was related to the sale of a large number of ACT tokens by three VIP users and one non-VIP user. But this does not mean that the decline of each token is driven by similar user selling. For ACT tokens, user selling may be the direct cause of ACT's decline, and the reasons behind multiple tokens seem to be related to this rule adjustment.

CoinGlass data shows that at 18:30, Binance's ACT contract holdings fell sharply by 75%, and similar situations also occurred in the holdings of several other tokens in the adjustment announcement, which is difficult to explain as a result of spot selling by individual large investors.

Second, this decline does not seem to be entirely caused by the adjustment of rules. Judging from the trends of several tokens, ACT has the largest decline, while several other tokens that have been adjusted, such as 1000SATS, have also fallen, but the magnitude is far less exaggerated than ACT. Moreover, another DEXE token that has fallen dramatically is not one of the tokens adjusted this time. However, tokens like MEW, which are also listed in the adjustment list, have not fallen as a result, but have instead gone out of the rising market.

Third, is Wintermute's departure a coincidence or intentional? At the same time as ACT plummeted, Wintermute sold multiple MEME coins held, and the market of these tokens also experienced flash crashes to varying degrees. Some social media users also speculated that the main reason for this decline was that Wintermute's algorithm robot had problems due to the influence of the rules.

Overall, this short-term flash crash seems to be more comprehensively explained by the fact that Binance adjusted the position rules of some token contracts, which caused the algorithm robots of some market makers such as Wintermute to fail to make timely adjustments.

However, no matter what the specific cause of this flash crash is, the market/users are always the ones who pay the bill.

According to Coinglass data, after the ACT flash crash, the ACT contract was liquidated by 8.71 million US dollars, ranking third in the entire network (only lower than Bitcoin and Ethereum). Not only that, those users holding spot goods also suffered the treatment of asset halving, and it seems difficult to recover in a short time.

Overall, the deep reasons for this flash crash are as follows. First, after the Hyperliquid incident, the exchange began to pay attention to the risk of giant whales manipulating the market, so it began to make adjustments. This was originally a good thing, but it was unexpected that it caused a stampede again. Second, due to the cooling of the MEME market, the related tokens have become fragile and sensitive in terms of trading depth and sentiment. Therefore, once there is a transaction beyond the norm, it will expose the reality that MEME coins have no value support.

This "April Fool's Day shock" in the crypto market, worth tens of millions of dollars, finally ended temporarily with the tacit "responsibility division" of exchanges, market makers, and project parties. But the warning buried deep in it is far more shocking than the surface. This flash crash may not have a real "murderer", but it has torn open the most real survival rules of the crypto market: in the sophisticated system built by institutions and whales, retail investors often become passive recipients of systemic fluctuations.