Ethena USDe Depeg Highlights Weaknesses in Synthetic Dollar Systems
By: Eliza Bennet
Ethena's synthetic dollar, USDe, experienced a significant market impact when it shed over $2 billion in value after temporarily losing its dollar peg. The incident, which occurred on Binance, revealed underlying vulnerabilities in crypto’s stablecoin framework. According to data, USDe's market value plummeted from $14.8 billion to $12.6 billion between October 10 and 12, coinciding with a pricing malfunction on Binance that also distorted wrapped assets like wBETH and BNSOL. USDe, specifically, fell to $0.65 at one point before recovering to parity, and Binance subsequently reimbursed users over $283 million for related losses.
This pricing mishap was compounded by a larger market liquidation event that shaved off more than $20 billion in digital-asset open interest, following geopolitical tensions prompted by potential US tariffs on Chinese imports. The combined stress of these events pushed traders towards safe-haven assets like gold, thus reducing market risk appetite and highlighting vulnerabilities in leveraged crypto markets. USDe's foundational strategy, which involves holding short positions in perpetual futures while maintaining long exposure through reserves in USDT and USDC, came under scrutiny as falling funding rates pressured the system's redemption capabilities.
The collapse of USDe's peg was not entirely systemic, with evidence showing that venues such as Bybit were less affected. Ethena Labs’ founder, Guy Young, reassured stakeholders that USDe's mint and redemption remained operational, with $2 billion processed within 24 hours. He also indicated that primary on-chain liquidity pools like Curve and Uniswap exhibited minimal deviations, supported by $9 billion in available collateral.
The depegging incident has far-reaching implications for the broader crypto market, including Bitcoin. Given USDe's integration in decentralized financial systems and exchanges, even minor pricing discrepancies can escalate into wider market issues, triggering forced liquidations and distorting reference prices. OKX founder Star Xu warned that the market must appreciate the inherent risks in USDe, as it functions akin to a tokenized hedge fund rather than a traditional stablecoin. Platforms must adapt risk management practices to mitigate systemic threats.
