Forced Liquidation Under Technical Instability: A Legal Analysis of User Rights and Exchange Liability in the Binance Futures System
- Tubrazy Shahid
- 5 days ago
- 4 min read
Forced liquidations remain one of the most controversial aspects of crypto-derivatives trading, particularly when they occur during periods of platform instability or degraded system performance. A recent case involving the liquidation of XRPUSD_PERP, ADAUSD_PERP, and ALGOUSD_PERP futures positions on Binance (10 October 2025) raises significant questions about fairness, transparency, and the obligations of major exchanges under international market-conduct standards.
The user involved suffered an almost complete wipeout of capital—approximately 7,000 XRP—despite attempting to manually close the position shortly before liquidation. The incident occurred exactly within a time window that Binance itself recognized as a period of technical impact affecting user execution, latency, and system response. Yet, despite this acknowledgment, Binance ultimately rejected the user’s complaint, categorizing the event as a “normal liquidation due to insufficient margin.”
This article examines the technical inconsistencies, legal standards, and regulatory obligations surrounding such cases, while explaining why the appeal for reconsideration is well grounded.
The Incident: Liquidation During a Technical-Impact Window
On 10 October 2025, a sharp market drop triggered extreme volatility across multiple assets. The user held several futures positions and was managing an unrealized 50% loss—risky but not yet outside liquidation range. Minutes before the forced liquidation, the user attempted to manually close the position to prevent a wipeout.
The system, however, did not execute the order.
Instead, the platform showed signs of:
latency,
execution delays,
system “busy” messages,
and a failure to submit or process close orders.
These symptoms match the conditions Binance later acknowledged affected users that day. Despite this, liquidation proceeded internally, erasing the remaining balance.
Although Binance later granted 4,000 USDC through the Together Initiative—a compensation program used only when the exchange recognizes a system impact—it simultaneously denied responsibility, calling the liquidation “normal.”
This contradiction sits at the core of the dispute.
The Technical Questions Binance Must Answer
In any liquidation review, transparency is the minimum requirement. Yet the user received no access to the technical records needed to verify the event, including:
tick-by-tick market data,
mark-price and index-price evolution,
latency logs,
order-rejection logs,
matching-engine reports,
liquidation-engine trigger records,
insurance-fund interactions.
These records form the backbone of any credible investigation into whether a forced liquidation was caused by market movement or platform failure.
Without these records, a user cannot confirm whether:
the liquidation price was accurate,
the maintenance-margin calculation was correct,
the index-price feed lagged or spiked,
the user’s close order was actually processed,
or if the system malfunction contributed directly to the loss.
Rejecting a complaint without disclosing these data points contradicts global standards of exchange transparency.
Applicable Legal and Regulatory Standards
1. IOSCO Market Integrity & Transparency Principles
IOSCO requires exchanges to ensure:
fairness of execution,
resilience of trading systems,
and proper user protection when systems fail.
If a liquidation occurs because a user was unable to act due to system malfunction, the event is considered non-compliant.
2. Seychelles FSA Conduct Rules (Binance’s registered regulator)
Sections 27 and 56 of the Seychelles Securities Act require:
accurate disclosure of material information,
fair treatment of clients,
and transparent investigation of disputes.
Refusing to provide logs or market data falls short of these obligations.
3. MiFID II Best Execution Standards (used internationally)
MiFID II requires that:
clients receive the best possible execution,
system errors must be corrected,
and users must not be disadvantaged by latency or platform failure.
Even though MiFID II does not directly govern Binance, its principles shape expectations for exchanges operating globally.
4. ADGM, VARA, and MAS Digital-Asset Guidelines
These international frameworks uniformly state that:
exchanges must ensure system functionality during trading,
correct or compensate any harm caused by technical malfunction,
and disclose the data needed to verify liquidation events.
Key Issue: A Liquidation Caused by System Failure Is Not “Normal”
The user’s account was liquidated only after the attempt to manually close the position failed. Had the system functioned properly, the user would have reduced exposure and avoided full liquidation.
This scenario—where liquidation is triggered not by the market but by the platform’s inability to execute a close order—is legally classified as an invalid liquidation under multiple regulatory frameworks.
The user did everything right.
The system did not.
Why the Appeal Is Strong and Justified
The appeal filed by the user requests only two things:
Technical transparency (release of logs and data), or
Fair compensation for a liquidation influenced by system instability.
These are reasonable demands fully supported by global standards. The fact that Binance issued partial compensation (4,000 USDC) is itself an implicit recognition that the user was affected by a technical impact.
To dismiss the case afterward as “normal” is inconsistent with both Binance’s own policies and international expectations for trading-system accountability.
The Next Steps: Regulatory Escalation if Needed
If Binance declines the appeal or refuses to release technical data, the user may escalate to:
Seychelles FSA (Binance’s regulator)
ESMA (if index price sourced from EU feeds)
ADGM / VARA (for cross-jurisdictional futures conduct concerns)
Interpol Digital Asset Crime Unit (for technical manipulation or systemic irregularities)
The purpose is not confrontation, but independent verification of the event.
Conclusion: User Rights Matter in a Global Digital Economy
Exchanges like Binance play a central role in digital-asset markets. As such, they carry heightened responsibility to ensure fair execution, transparency, and proper dispute handling.
When a user is prevented from closing a position due to system malfunction, and liquidation follows, the fault does not lie with the trader — it lies with the infrastructure.
This case highlights a broader truth: In crypto futures trading, system reliability is not optional. It is a legal obligation.
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Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal or financial advice.
Author & Crypto Consultant
Shahid Jamal Tubrazy (Crypto & Fintech Law Consultant)
Shahid Jamal Tubrazy, a certified top expert in Crypto Law from Duke University, is a leading authority in the cryptocurrency and blockchain space. As a seasoned Fintech lawyer, he offers a full spectrum of services, including licensing, legal guidance for ICOs, STOs, DeFi, and DAOs, as well as specialized expertise in crypto mediation, negotiation, and mergers and acquisitions. With a proven track record and published works on Blockchain Regulation and Cryptocurrency Laws, Shahid provides unparalleled insights into the complexities of the fintech world, ensuring compliance and strategic success. 🌐💼 #CryptoLaw #Fintech #Blockchain #LicenseServices #CryptoMediator #MergersAndAcquisitions #CryptoCompliance #FrozenAssetsrecovery.
EMAIL: shahidtubrazy@gmail.com
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