October 10th, 2025: A Case Study in Crypto Counterparty Management

October 10th, 2025 Market Recap

A little over two weeks ago the world was once again reminded about the precariousness of crypto markets. On October 10th, millions of crypto traders suffered one of the most volatile trading days in recent history, causing numerous liquidation events within a matter of hours, resulting in a total net loss of approximately $19 billion in levered positions.

From the short moments after the event began, straight through to the day of this piece’s publication, there remains analysis, caution and reflection for those who managed the volatility to live another day, to those who profited, and to those who stared at, and may still be staring at, a big hole in their portfolios.

As the research and opinions of October 10th continue to come in, one common theme most agree on is the spotlight put on counterparties. Particularly, institutional investors have focused on the sting many felt by certain market participants through the actions taken by centralized crypto exchanges and their auto deleveraging (ADL) programs, market makers not managing their pools efficiently, if at all, and the lack of a traditional financial markets mechanism, known as a circuit breaker.

The Fund Manager Perspective

Crypto Insights Group’s October 2025 Fund Manager Survey caught, and clearly demonstrated, the sentiment felt by many market participants.

Fund managers expressed broad frustration with the quality of liquidity during the October 10th volatility, as execution and market depth deteriorated sharply when stress hit. Many also pointed to widespread outages, both at exchanges and at API-connectivity levels, that compounded trading difficulties.

Beyond the mechanics, sentiment and trust were meaningfully affected, with several managers noting that confidence in market infrastructure will take time to rebuild. Together, the feedback highlights structural fragility that continues to define digital asset markets under stress.

**Source:** Crypto Insights Group Fund Manager Survey, October 2025

It’s all a stark reminder that counterparty risk management should never by a “one and done” exercise, but a continuous process by which both investment manager and counterparty’ risks are scrutinized with regular frequency, where customers force themselves to read the “fine print” on how exactly a counterparty may function against their interests, and some come to appreciate that for all the benefits of automation in crypto markets, such automation may be a double-edged sword.

Back To Basics / Counterparty Due Diligence 101

For Crypto Insights Group’s operational due diligence practice, a series of questions asked of a digital assets investment manager is organized around their counterparty management process… initial and ongoing. Within this line of questioning, we assess how a manager vets their chosen counterparties at the onset of a relationship, beyond the counterparty’s service or product offering, understanding if a manager is drilling down into a counterparty’s financial standing, legal and regulatory exposure, technology, operations, and cyber posture. We inquire as to what the manager does on a day to day basis in assessing the risk of the counterparty to their clients’ accounts.

Interestingly, and through data collected by Crypto Insights Group’s FirmIQ™ benchmarking function, we’ve found that 35% (or more than 1/3rd) of crypto fund managers conduct counterparty due diligence annually, only 23% are assessing with some consistent frequency (monthly, quarterly or semi-annually), and a majority, or 42%, conduct due diligence on an ad-hoc basis (See chart below).

**Source**: Crypto Insights Group FirmIQ™ Benchmarking Data

Inferring from the data, most crypto fund managers are not showing consistency in counterparty due diligence, which is something CIG encourages when discussing best practices with managers.

Middle Office Risk Management

Another lesson from October 10th, and a part of CIG’s manager due diligence service, is assessing the process by which a fund manager’s operations are handling the important middle office function of collateral management.

For those investment strategies which employ leverage, a manager should be able to properly demonstrate the processes, and detail the technology used to monitor and respond to collateral management needs, both during regular market cycles and volatile cycles. With crypto markets operating on a 24/7 basis, the reality for most managers, regardless of investment strategy, is that they need tools, software and processes that can operate in a perpetual state, so as to respond to, and fulfil, their leveraging and collateral commitments when a counterparty is seeking replenishment.

In fact, what has directly been called into question as a result of the recent market event, and has been a matter of debate for some time, is the quality of collateral a counterparty is willing to accept.

Again, counterparty due diligence comes into play, as an additional theme of questions for a counterparty should include how they manage their own liquidity and monitor their exposure to other market participants.

Improving Upon October 10th

Although many structural, systemic and institutional improvements have been made to the crypto trading markets in recent years, infamous counterparty experiences, such as that with FTX, should still be fresh in many minds, as there are echoes of the market disruption caused in the Fall of 2022 which some were hearing again on October 10.

In order to keep the industry on pace with improving upon hard lessons learned over the years, and new insights gleaned from each market cycle, adhering to high-quality standards and introducing best practices in digital asset investing is one of the pillars of Crypto Insights Group’s mission.

Through CIG’s collection and maintenance of the highest quality crypto investment and operational data, benefiting both fund managers and institutional allocators alike, our data-science and practical application approach supports the needs of institutions looking to participate in the potential of the crypto space.