Ethena’s $2B USDe Depeg Exposes Crypto Stablecoin Risks

The crisis began when Ethena’s USDe synthetic dollar experienced a dramatic depegging event on Binance, with its market capitalization collapsing from $14.8 billion on October 10 to $12.6 billion by October 12. At the peak of the disruption, USDe traded as low as $0.65 before eventually recovering to parity with the US dollar. The incident coincided with a broader market sell-off that wiped out over $20 billion in digital asset open interest, triggered by former US President Donald Trump’s pledge to implement 100% tariffs on Chinese imports.

Binance’s pricing glitch affected multiple assets beyond USDe, including wrapped tokens like wBETH and BNSOL, which temporarily broke their links to underlying assets. The exchange later confirmed it had reimbursed users over $283 million for losses related to the incident. However, the damage extended beyond immediate financial losses, exposing how venue-specific malfunctions can create systemic risks in increasingly interconnected crypto markets.

Dragonfly’s Haseeb Qureshi provided crucial context, noting that while USDe experienced price dislocations across centralized exchanges, the deviations were not uniform. “Bybit briefly hit $0.95 then quickly recovered, yet Binance depegged a crazy amount and took forever to regain the peg,” Qureshi observed, adding that Curve liquidity pools dipped a mere 0.3%, suggesting the problem was largely isolated to Binance rather than reflecting systemic failure.

USDe’s underlying mechanism relies on a basis trade strategy that involves shorting perpetual futures while maintaining long spot exposure through reserves in established stablecoins USDT and USDC. This structure becomes vulnerable when funding rates fall sharply, reducing returns and creating redemption pressure on the system. The recent market volatility, which saw investors rushing into safe havens like gold, exposed these inherent weaknesses in leveraged crypto markets.

Ethena Labs founder Guy Young defended the protocol’s resilience, confirming that mint and redemption operations remained fully functional throughout the crisis, processing an impressive $2 billion in redemptions within 24 hours. Young emphasized that $9 billion in collateral, primarily consisting of USDT and USDC, remained available for instant redemption, and the asset’s primary on-chain liquidity pools on Curve, Uniswap, and Fluid showed minimal deviations.

“I do not think it is accurate to describe this is a USDe depeg when a single venue was out of line with the deepest pools of liquidity that experienced no abnormal price deviations whatsoever,” Young argued, highlighting the distinction between exchange-specific pricing errors and genuine protocol failure. This defense underscores the complex relationship between centralized exchange infrastructure and decentralized financial protocols.

The USDe incident carries significant implications for Bitcoin, Ethereum, and the broader crypto ecosystem. Although USDe is not marketed as a conventional stablecoin, its expanding role in crypto’s financial plumbing means that even temporary pricing dislocations can trigger cascading effects. Such disruptions can force liquidations in lending markets, reduce liquidity in BTC and ETH trading pairs, and distort reference prices used across decentralized platforms.

OKX founder Star Xu issued a crucial warning about misclassifying synthetic dollar products like USDe. “Such funds typically employ relatively low-risk strategies such as delta-neutral basis trading or money-market investments, but they still carry inherent risks — including ADL events, exchange-related incidents, and custodian security breaches,” Xu explained. He emphasized that platforms using USDe as collateral must implement adaptive risk controls rather than treating it like traditional stablecoins.

The market must recognize that USDe represents a “tokenized hedge fund” rather than a “1:1 pegged stablecoin,” according to Xu. Ignoring these structural nuances could introduce systemic exposure to the broader crypto market, potentially transforming a localized fault into a sector-wide crisis. As synthetic dollar products continue to grow in prominence, the incident serves as a stark reminder that innovation in crypto financial instruments must be matched by sophisticated risk management frameworks.