In a CNBC interview on November 21, Lee revealed that the chaos began when a stablecoin on one major exchange abruptly collapsed to $0.65 due to what he called an internal pricing error. That unexpected drop instantly activated the platform’s ADL (auto-deleverage) mechanism, a process designed to protect the exchange by forcibly unwinding positions.
According to Lee, the malfunction set off millions of automatic liquidations within minutes, wiping out traders and forcing margin accounts to close simultaneously. What followed was a full-scale feedback loop: every liquidation added selling pressure, causing further liquidations across interconnected markets.
Lee described the event as a chain reaction caused by a code-level flaw, one severe enough to hit market makers’ balance sheets and force them to rapidly pull back liquidity. This retrenchment, he said, weakened market depth across the entire crypto ecosystem.
The aftershocks were visible for weeks. With liquidity providers sidelining capital and exchanges tightening risk controls, the broader market entered a period of sustained stress, ultimately sending Bitcoin and other major assets into a prolonged tailspin throughout late October and early November.
Lee emphasized that the fallout was not a traditional panic, but rather a structural failure that cascaded through the system faster than human intervention could stop it. As liquidity thinned, volatility spiked, amplifying the downturn.
While the specific stablecoin and exchange were not publicly named, Lee suggested that the combination of automated liquidation systems, flawed pricing logic, and insufficient circuit breakers made the event uniquely destructive, and a critical lesson for digital asset infrastructure going forward.
