What Exchange Liquidity Reveals Under Stress

On Oct. 10, 2025, crypto went through its largest liquidation event in history. In just 25 minutes, $19 billion in leveraged positions were wiped out. Bitcoin dropped from $126,000 to $105,000. Ethereum fell 12%. Some altcoins lost more than half their value in a single day.

What many people missed was not the price move, but what happened inside the order books.

Exchanges were still reporting massive trading volume. Yet many traders could not execute anywhere near the prices they were seeing on their screens. Depth vanished, and spreads exploded. Liquidity that normally absorbs large trades simply disappeared.

Volume showed activity. Liquidity showed reality.

The Volume Illusion

For years, the industry has used volume as a proxy for exchange quality. Higher volume is assumed to mean better liquidity and better execution.

October proved how misleading that assumption is.

Research has shown that in some unregulated venues, 70 to 95% of reported volume can come from wash trading. Even on legitimate exchanges, large turnover does not guarantee that real orders are sitting close to the mid price when you need them.

During the October crash, perpetual futures volume stayed high while executable depth collapsed by more than 98%. What traders saw was forced liquidations racing through nearly empty books. That created the illusion of liquidity, while in reality almost nothing was available to trade against.

If you were relying on volume to judge execution quality, you learned the hard way that day. A more reliable approach is to check assets-under-management rankings and trade only on exchanges with clear, verifiable Proof of Reserves. These metrics reveal actual capital commitment rather than manufactured activity.

What Stress Actually Exposes

Real liquidity only becomes visible when markets are under pressure. Three things matter far more than headline volume.

Depth near the mid price. This tells you how much you can trade without moving the market. During normal conditions, liquid pairs often have meaningful size within 10 to 25 basis points of mid. On October 10, that depth collapsed, leaving traders facing price impact of 1% to 3% on trades that would normally barely move the book.

Spread stability. When market makers step back, spreads widen. On that day, Bitcoin perpetual spreads blew out to roughly 26 basis points, more than 1,200 times wider than usual.

Slippage. This is what traders actually feel. It combines both spread and missing depth. Even small market orders were jumping multiple price levels as they consumed what little liquidity remained.

All of this happened on exchanges reporting record volume. The issue was not activity. It was capacity.

Fragmentation Makes the Problem Worse

Crypto liquidity in 2025 is scattered. Roughly 80% sits on centralized exchanges. The rest lives on decentralized protocols. Within each category, it is split across dozens of venues.

On paper, global liquidity looks enormous. In practice, traders only interact with the local order book of the venue they are using. If that venue’s market makers pull back during stress, it does not matter how much liquidity exists elsewhere.

The October crash made this painfully clear. Some exchanges kept functioning. Others saw liquidity almost completely disappear. The difference was not volume, it was the quality of their market maker relationships and their ability to keep quotes live when risk spiked.

How Real Execution Quality Is Built

At Phemex, we built our Retail Price Improvement system for exactly these moments.

RPI is a maker-only liquidity layer that interacts only with non-algorithmic retail flow. By separating retail traders from high-frequency strategies, liquidity providers can quote tighter prices without worrying about being picked off by faster traders.

After the December 2025 upgrade, depth within ±0.1% of mid-price shows:

BTCUSDT at 2× industry benchmarks
ETHUSDT at 5× average market liquidity
SOLUSDT at 5.5× top-tier exchange standards
Across our top 12 pairs, about 3× baseline depth

These numbers matter because they represent executable liquidity, not just reported turnover.

Keeping liquidity in the book during volatility is not just about software. It requires market maker commitments, risk systems that let them manage inventory, and incentives tied to staying active when conditions deteriorate.

What This Means for Traders

As crypto becomes more fragmented, the gap between volume and real execution quality will only grow.

On-chain perpetuals nearly tripled in open interest in 2025. DEX volumes hit new records. Liquidity is everywhere, but rarely in one place when you actually need it.

For traders, that means looking beyond volume. What matters is depth at your trade size, spread behaviour during recent volatility, and whether the venue has a track record of staying liquid when markets are stressed.

For exchanges, it means competing on execution infrastructure instead of marketing numbers. This approach also allows us to operate transparently as an A-book venue, where all trades are routed to real liquidity providers, as opposed to many newer exchanges that operate B-book models.