313 · Doug Colkitt - When Crypto Markets Break: Liquidations, Leverage, and Markets Under Stress

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Dec 16, 2025

Doug Colkitt, a quantitative trader and DeFi expert with a background at Citadel, dives deep into crypto market mechanics. He discusses the dark side of leverage and why traders still get caught in liquidation cascades. Colkitt shares insights on the complexities of perpetual futures and the importance of transparent market structures. He also explores the risks of liquidity providing and why trusting decentralized exchanges is crucial. Tune in for an engaging look at how market dynamics can spiral in times of stress.

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INSIGHT

Perps Amplified Hidden Systemic Leverage

Perpetuals concentrated huge hidden leverage across venues and Dex perps accelerated that buildup.
When funding, tokens and yield farming encouraged leverage, systemic risk accumulated unnoticed.

INSIGHT

Cross-Venue Hedges Can Fail Fast

Hedged positions across different clearinghouses can still liquidate independently and break your hedge.
Profits on one venue don't prevent forced liquidations on another during fast moves.

ANECDOTE

On-Chain Arbitrage With Flash Loans

Doug built bots to scan DEXes and execute multi-venue arbitrage in single blockchain transactions.
He used flash loans and smart contracts to perform riskless arbitrage without posting collateral.

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In this episode, we examine what actually happens when crypto markets break — how leverage builds beneath the surface, liquidity disappears, and liquidation cascades turn volatility into systemic failure.

Doug Colkitt, a quantitative trader and DeFi builder whose experience spans both traditional finance and crypto market structure. Doug began his career on Wall Street at Citigroup before moving into high-frequency trading at Citadel during the 2008 financial crisis. He later built and traded his own systems across futures, volatility products, and international equities, including running a major market-making operation in Turkish stocks.

Today, Doug focuses on crypto and DeFi infrastructure, working with perpetual futures, liquidation mechanics, and exchange design. We discuss why traders still get wiped out when they think they’re hedged, how liquidation cascades accelerate, and what recent market failures reveal about leverage and market structure under stress.

Links +Resources:

Ambient Finance on X (Twitter): @AmbientFinance
Website: https://ambient.finance

Sponsor of Chat With Traders Podcast:

● Trade The Pool: ⁠⁠http://www.tradethepool.com⁠⁠

Time Stamps:

Please note: Exact times will vary depending on current ads.

00:00:00 Intro and Background
00:03:43 Starting Individual Trading and High Frequency Systems
00:04:09 Focus on Index Futures and Competitive Markets
00:06:15 Michael Lewis's 'Flash Boys' and HFT Accuracy
00:07:00 Impact of HFT on Smaller Traders
00:09:13 Market Makers and Price Competition
00:09:37 HFT Evolution and Market Dynamics
00:11:24 Trading VIX Futures and Market Inefficiencies
00:13:08 Transitioning to Medium Frequency Trading
00:13:34 Trading Turkish Equities and Market Makings
00:15:35 Exploring Cryptocurrency Trading
00:18:32 Diving into Decentralized Finance (DeFi)
00:20:06 Arbitrage Opportunities in Crypto Markets
00:22:00 Flash Loans and Risk-Free Trading
00:22:48 Adjustments to Trading Bots Over Time
00:25:11 Criteria for Trusting Decentralized Exchanges
00:28:46 Liquidity Providing and Yield Opportunities
00:29:16 Volatility and Risks in Liquidity Provisioning
00:31:47 Understanding Perpetual Contracts in Crypto
00:36:04 October 10, 2025 Crypto Massacre Overview
00:37:36 Leverage and Market Dynamics
00:41:23 Impact of Liquidations on Market Sentiment
00:41:43 Market Maker Behavior During Crises
00:43:45 Liquidity Issues in Centralized Exchanges
00:44:53 Hyper Liquid Vault and Liquidation Dynamics
00:45:55 Market Making Strategies and Risk Management
00:49:15 Insurance Fund Models in DeFi
00:51:43 Ambient Finance Project Overview
00:53:08 Separation of Exchange and Clearinghouse
00:54:14 Innovations in Perpetual Trading
00:55:46 Takeaways from the October 10th Massacre
00:57:03 Future Plans for Insurance Fund Integration
00:58:28 Real World Assets and Crypto Integration

Trading Disclaimer:

Trading in the financial markets involves a risk of loss. Podcast episodes and other content produced by Chat With Traders are for informational or educational purposes only and do not constitute trading or investment recommendations or advice.

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