USDe Depegging: Binance Oracle Issue Caused $1B Liquidations

Guy Young, CEO of USDe creator Ethena Labs, provided crucial clarification that the stablecoin’s collapse to $0.65 on Binance stemmed from an exchange-specific oracle issue rather than problems with USDe’s underlying collateral. During Friday’s market turmoil, while USDe maintained its dollar peg across most trading platforms, Binance’s price feed referenced the exchange’s own orderbook data, which offered significantly thinner liquidity than global markets. Young emphasized that USDe’s core minting and redeeming mechanisms functioned perfectly throughout the crisis, with traders successfully processing $2 billion in redemptions across various exchanges with minimal price deviations.

The severity of the price discrepancy was compounded by Binance experiencing simultaneous deposit and withdrawal issues during the market crash. This technical disruption prevented market makers from executing arbitrage trades that would normally correct such pricing anomalies. Young specifically noted that “no one would have been liquidated on any money market with oracles referencing the deepest pools of liquidity for USDe globally,” highlighting how the problem was confined to Binance’s isolated pricing mechanism rather than reflecting USDe’s actual market value.

Market participants have speculated that the depegging event may have been part of a sophisticated coordinated attack targeting Binance’s “Unified Account” feature. This system allows users to post assets, including USDe, as collateral but relies exclusively on Binance’s internal order book data instead of external price oracles. With Binance having announced plans to migrate to external oracle data by October 14, traders believe attackers exploited this transition window by dumping approximately $90 million in USDe on Binance’s thin orderbook.

The strategic timing of the attack appears calculated for maximum impact. Minutes before President Trump’s tariff announcement sent markets into a tailspin, the suspected attackers opened substantial short positions on Bitcoin (BTC) and Ethereum (ETH) on Hyperliquid. The combination of the USDe dump depressing its value on Binance and the subsequent market-wide crash created perfect conditions for cascading liquidations. The resulting price discrepancy between Binance’s USDe valuation and its stable $1 price elsewhere triggered nearly $1 billion in liquidations across the platform.

In response to the crisis, Binance has paid approximately $283 million in compensation to users holding three affected assets: Ethena’s stablecoin USDe, Binance-issued Solana liquid staking token BNSOL, and Wrapped Beacon liquid staking token WBETH. The compensation covered futures, margin, and loan users who held these assets as collateral during the critical window between 21:36 and 22:16 UTC when the depegging occurred. Exchange executives issued apologies to affected users following the market crash that caused all three assets to deviate significantly from their intended pegs.

The incident has exposed critical vulnerabilities in how major exchanges manage price discovery during extreme market volatility. While USDe maintained stability across other trading platforms, the panic triggered by its Binance depeg spread throughout the crypto community, with many traders initially believing the stablecoin had collapsed market-wide. The event underscores the systemic risks posed by exchanges relying on internal oracle systems during periods of market stress, particularly when those systems reference orderbooks with insufficient liquidity depth.