2 billion USD evaporated! USDe depeg exposes fatal flaws in synthetic stablecoins

Ethena's synthetic dollar USDe briefly depegged on the BNB platform, with its market capitalization falling from 14.8 billion USD to 12.6 billion USD, evaporating over 2 billion USD. This USDe depegging crisis once caused the token price to drop to 0.65 USD, although it later recovered to par, it has exposed the structural risks of synthetic stablecoins relying on basis trading.

Complete Timeline of the USDe Depeg Incident

The USDe depeg crisis that shocked the cryptocurrency market occurred between October 10 and 12, coinciding with a period of intense turbulence in the global financial markets. U.S. President Trump suddenly announced a 100% tariff on Chinese imports, which triggered a surge in global risk-averse sentiment, leading investors to flee risk assets in favor of traditional safe-haven tools like gold. The cryptocurrency market was hit hardest, with over $20 billion in digital asset open contracts being forcibly liquidated in a short period, making it one of the largest liquidation events of the year.

In this extreme market environment, the structural weaknesses of USDe have been thoroughly exposed. According to data from CryptoSlate, the market capitalization of USDe sharply contracted from 14.8 billion USD on October 10 to 12.6 billion USD on October 12, evaporating more than 2 billion USD in just two days. Even more shocking is the collapse at the price level, where USDe on the BNB platform once fell to 0.65 USD, plummeting 35% from its theoretically maintained parity of 1 USD. Such a degree of USDe depeg is catastrophic for an asset that claims to be pegged to the US dollar, instantly destroying the market's confidence in its value stability.

BNB platform's chain reaction

The recent depeg of USDe is not an isolated incident but occurred simultaneously with broader technical failures of the BNB platform. The pricing system of the BNB platform experienced anomalies, affecting not only USDe but also temporarily disconnecting various wrapped assets such as wBETH (wrapped Beacon ETH) and BNSOL (wrapped Solana) from their underlying tokens. This systemic technical failure amplified market panic, as traders were unable to determine whether the price deviations were due to real market selling pressure or merely technical errors of the platform.

The BNB platform has acknowledged the incident and announced compensation of more than 283 million USD for affected users. This hefty compensation amount itself indicates the severity of the event. The compensation covers erroneous liquidations, trading losses, and other direct economic losses caused by price anomalies. However, this post-remedy measure cannot completely eliminate the trust trauma left by the USDe depeg incident. Many investors have begun to question, if a “stablecoin” managing over 14 billion USD in assets can lose one-third of its value in just a few hours, can it still be called a stablecoin?

Structural flaws of synthetic USD revealed

The controversy triggered by the USDe depeg event lies not only in the price volatility itself but also in the fundamental questioning of the asset nature of USDe. Haseeb Qureshi, a partner at Dragonfly, pointed out in his analysis afterward that USDe “has not depegged globally.” His data shows that while USDe has fallen on every centralized exchange, the extent of the fall is not uniform. The BNB platform experienced a chaotic price disruption and took a long time to regain its peg. More importantly, the USDe liquidity pool on the decentralized exchange Curve only fell by 0.3%, showing almost no impact.

The huge price discrepancies between different platforms reveal a key issue: the depeg of USDe is primarily a technical fault specific to the BNB platform, rather than a systemic collapse of USDe itself. Guy Young, the founder of Ethena Labs, confirmed that during the entire event, the minting and redemption functions of USDe remained operational and successfully processed $2 billion in redemption requests within 24 hours. He emphasized that the price deviations shown by the main on-chain liquidity pools (Curve, Uniswap, and Fluid) were minimal, and the $9 billion collateral supporting USDe (mainly USDT and USDC) was always readily redeemable.

Based on these facts, Guy Young believes that describing this incident as “USDe depeg” is inaccurate. His logic is that if only a single exchange experiences abnormal pricing, while the deepest liquidity pools and redemption mechanisms remain normal, then this should be classified as an exchange failure rather than an asset failure. However, this defense overlooks a key fact: for the thousands of users trading USDe on the BNB platform, a price drop to $0.65 is the reality they are experiencing, regardless of how prices are on other platforms.

Risk Exposure of Basis Trading

The deep reasons behind the depeg event of USDe are closely related to its unique structural design. USDe is not a stablecoin that is fully collateralized 1:1 by fiat currency or crypto assets in the traditional sense, but rather a “synthetic dollar” whose value stabilization mechanism relies on what is known as delta neutral basis trading. Specifically, Ethena holds long spot positions in cryptocurrencies such as ETH while simultaneously shorting an equivalent amount of ETH in the perpetual contract market, theoretically achieving delta neutrality. Under normal market conditions, the financing rate for perpetual contracts is positive, and short sellers can continuously collect financing fees, which become the source of returns for USDe holders.

This mechanism works well in bull markets or stable markets, but has fatal weaknesses under extreme market conditions. When market panic leads to a large number of traders closing their positions, the funding rate of perpetual contracts can plummet sharply or even turn negative. At this point, the gains from basis trading not only disappear but may also turn into losses. More seriously, if a large number of USDe holders simultaneously request redemption, Ethena may be forced to close hedged positions at unfavorable prices, further exacerbating losses. The recent depeg of USDe occurred against the backdrop of a significant decline in funding rates and a depletion of market liquidity, exposing the vulnerabilities of the synthetic dollar mechanism under stress testing.

Systemic Threats to the Cryptocurrency Market

CEX issued a stern warning after the incident, emphasizing that the market must recognize the true nature of USDe: it is a tokenized hedge fund, not a “1:1 pegged stablecoin.” This distinction is crucial. Traditional stablecoins like USDC and USDT are backed by the issuer holding an equivalent amount of dollar reserves or short-term U.S. Treasury bonds, allowing users to redeem at a 1:1 ratio at any time. In contrast, the value of USDe relies on complex derivative strategies, with risk characteristics that are entirely different.

Xu Mingxing pointed out that while USDe adopts a relatively low-risk Delta neutral basis trading strategy, there are still multiple inherent risks. The first is the ADL (Automatic Deleveraging) event risk, where profitable positions may be forcibly deleveraged when the exchange's insurance fund is insufficient to cover liquidation losses. The second is exchange-related event risk; as demonstrated by the recent BNB platform outage, technical issues on the platform can lead to price chaos. The third is the risk of custodian security vulnerabilities; if the custodian holding the collateral is attacked by hackers or funds are misappropriated, the entire USDe system may collapse.

What is even more concerning is the growing application of USDe in the DeFi ecosystem. Currently, USDe has been embedded in multiple decentralized lending protocols as collateral and is also used as the quoted currency for trading pairs on several centralized exchanges. This means that even a temporary depeg of USDe could trigger a chain reaction. When the price of USDe deviates from 1 USD, lending positions using USDe as collateral may trigger liquidations, which in turn could further depress the price of USDe, creating a vicious cycle. Furthermore, if the USDe side price of the BTC/USDe or ETH/USDe trading pairs becomes distorted, it will distort the reference prices used by decentralized exchanges, affecting the price discovery mechanism of the entire market.

Xu Mingxing thus called for platforms using USDe as collateral to adopt adaptive risk control mechanisms, rather than granting USDe the highest collateral rates and lowest liquidation thresholds as they do with USDC. He warned that ignoring the structural nuances of this asset could turn localized failures into a systemic crisis for the entire industry. Although the $2 billion USDe depeg incident was eventually brought under control, it has sounded the alarm: in the constantly evolving cryptocurrency ecosystem, it is essential to carefully differentiate the risk characteristics of different types of tokens, and one cannot simply equate an asset that claims to be pegged to the US dollar with traditional stablecoins.

The lessons from this crisis are profound. Synthetic stablecoins represent the forefront of innovation in crypto finance, but innovation must be built upon transparent risk disclosure and prudent risk management. For investors, understanding the fundamental differences between USDe and USDC, and recognizing the vulnerabilities of synthetic mechanisms under extreme market conditions, is key to avoiding becoming the next victim of USDe depeg. For DeFi protocols and exchanges, reassessing the risk weighting of USDe and establishing dedicated risk models for synthetic assets has become an urgent task.