How CeFi Destroys Market Confidence: The Truth Behind the flash crash After $20 Billion Outflow from Binance Remains a Black Box

The crypto market has experienced a bloody storm of flash crashes and blame over the past few days, from market makers losing billions of dollars to the collapse of user confidence in Binance, all of which have revealed a microcosm of the deterioration of dark box finance and market structure to the community. When exchanges and market makers choose to cover up the truth or gloss over it, the trust mechanism of the entire market is also heading towards collapse.

Who will take over after the flash crash in the crypto market? Passive market makers become the victims.

Crypto KOL @octopusycc pointed out that the recent flash crash has caused varying degrees of losses for most passive market makers (Passive MM), including well-known institutions such as DWF Labs, Wintermute, GSR, and Flow Traders.

Although the losses are still within a controllable range, it also exposes the structural vulnerability of the crypto market: “When active market makers sell assets in volatility, passive market makers can only be forced to take over.” However, this mechanism also allows a small number of market makers to have a higher control ratio, further strengthening market concentration.

He suggested that market makers should establish cross-time zone trading centers to ensure that risks can be handled promptly during market anomalies; while exchanges should establish clear penalty and regulatory frameworks to prevent some market makers from maliciously withdrawing liquidity, which could lead to market instability.

( From the flash crash in the crypto market, looking at the privileges of market makers: will trading institutions suffer heavy losses and trigger a liquidation wave? )

Vicious Cycle: How do communities trust exchanges?

Crypto OG @0xcryptowizard also pointed out that the value loss of assets within the exchange and on-chain assets is forming a vicious cycle: “When the assets in the exchange are worthless and the on-chain meme coins continue to absorb liquidity, the wealth effect in the market will gradually disappear.”

This kind of cycle is useless if it only relies on a short-lived wealth effect. If the situation of “assets listed on the exchange being worthless” persists, the chain will eventually dry up, just like Solana after the TRUMP coin.

He warned that this phenomenon is causing Binance to gradually lose its appeal, and eventually the exchange will only have the function of a “contract casino.” Coinglass data also confirms this, with a capital outflow from Binance reaching 21.75 billion USD in just the past seven days, indicating that investors have expressed their stance with their funds.

From the perspective of traditional finance: If it were on Wall Street, regulators would have already come knocking.

Researcher Aylo cited the perspective of traditional financial market makers, pointing out that if this situation occurred on NASDAQ or the New York Stock Exchange, the U.S. Securities and Exchange Commission (SEC) would have “paid a visit” within an hour.

He stated: “Binance must provide a reasonable explanation. If a flash crash occurs on a platform that can define prices and settle, and no explanation follows, then serious investors will eventually leave this market.”

In his view, going on-chain is the only way out: “We must break free from black box finance, otherwise these assets will ultimately bring no value to the world.”

(Limitless founder reveals Binance listing conditions: spot trading must hand over 8% of token supply, CJ claims no confidentiality agreement was signed)

User Discontent: Controversy Over Binance's Responsibility and Compensation Mechanism

Binance's long-term user @GammaPure publicly accused Binance of negligence and lack of transparency, stating that he himself suffered a liquidation of over 4 million dollars during the incident, questioning why several market makers cooperating with Binance did not fulfill their responsibilities for maintaining liquidity, depth, and index prices.

Market makers have disappeared, leaving a blank liquidity gap.

He pointed out that tokens like bSOL and bETH, which carry the Binance logo, decoupled during the flash crash, yet no stabilization actions were taken, allowing them to be used as contract collateral, resulting in a chain liquidation.

He criticized more angrily: “In the absence of completely transparent liquidation data, Binance even offered less than five days' worth of transaction fee income as compensation.”

(Binance liquidation data is absurdly low! Hyperliquid publicly challenges Binance with its liquidation data? )

When trust disappears, liquidity will also dry up.

Today, a severe flash crash event acts like a mirror, reflecting the structural problems of centralized exchanges and the systemic concerns of the entire crypto market. When black box finance and insider trading overshadow decentralization and the spirit of cyberpunk, the market becomes just a zero-sum game of unregulated bets between institutions and retail investors.

This article discusses how centralized finance destroys market confidence: the truth behind the flash crash after $20 billion flowed out of Binance remains a black box. Originally appeared in Chain News ABMedia.