TLDR
- Ethena’s USDe stablecoin dropped to 65 cents during a $19B market sell-off.
- USDe regained its peg swiftly, and minting and redeeming remained operational.
- Ethena Labs confirmed USDe was over-collateralized despite market turmoil.
- ENA token fell 40% but recovered, with Binance reviewing liquidation cases.
In a dramatic turn of events, Ethena’s yield-bearing stablecoin, USDe, lost its 1:1 peg to the U.S. dollar amid a massive $19 billion crypto liquidation. The brief dip, triggered by market volatility following U.S. President Donald Trump’s announcement of new tariffs on China, sent shockwaves across the crypto space. However, the stablecoin quickly regained its value, and Ethena Labs confirmed that its mint and redeem functions remained intact.
USDe Peg Briefly Drops Amid Market Crisis
Ethena’s USDe stablecoin, which offers a 5.5% yield to holders, faced a significant drop in value during the recent market turmoil. The trigger for the sudden shift was a sharp sell-off sparked by U.S. President Trump’s unexpected announcement of a 100% additional tariff on Chinese goods. This news sent investors fleeing to safer assets like gold and U.S. Treasuries, creating a panic that affected many crypto assets, including USDe.
At its lowest point, USDe was recorded at 65 cents on Binance, falling far below its usual dollar peg. However, the stablecoin recovered quickly, returning to its $1 value after a short period. The price drop coincided with a massive liquidation event that saw over $19 billion worth of crypto positions being liquidated within 24 hours. This liquidation cascade has been called one of the largest in the history of cryptocurrency markets.
Ethena Labs Provides Assurance on USDe’s Stability
Despite the brief drop in value, Ethena Labs, the team behind USDe, issued a statement assuring users of the coin’s stability. The lab confirmed that USDe remained over-collateralized, meaning its value was still fully backed by assets. The mint and redeem functionality also continued to operate smoothly, without any interruptions or downtime.
The volatility in USDe’s price was largely attributed to a disruption in the secondary market, which saw liquidations pushing perpetual contract prices below the spot value. Ethena Labs explained that the protocol’s basis trade strategy, which involves taking short positions on these contracts, led to additional unexpected unrealized profit and loss (uPNL). As the liquidations were processed, the protocol stood to benefit from the situation.
Broader Market Effects and Governance Token ENA’s Decline
The cascading liquidations not only impacted USDe but also affected the broader cryptocurrency market, including Ethena’s governance token, ENA. During the price drop, ENA fell by as much as 40%, but it began to recover shortly after. Despite the recovery, ENA was still down by nearly 25% in the past 24 hours.
Crypto trader and economist Alex Krüger commented that USDe’s volatility had an outsized impact compared to other tokens that are not as actively traded on centralized exchanges. These less-liquid tokens saw less severe effects and recovered more quickly. On the other hand, platforms like Aave had USDe hardcoded at $1, which helped shield them from the immediate impact of the price dip.
Exchange Responses and Compensation Review
As part of its response to the event, Binance, one of the leading exchanges, announced that it was reviewing affected accounts and liquidations. The exchange confirmed it would consider compensation measures for those affected by the price deviation.
While Binance worked to address the issue, it emphasized that its price marking was in real time, which reflected the broader market volatility during the liquidation event.
The sharp fluctuations in USDe’s price demonstrate the challenges faced by stablecoins during periods of extreme market stress. However, the swift recovery and operational stability of the stablecoin’s mechanisms suggest that USDe’s structure remains resilient in the face of such challenges. Ethena Labs has committed to maintaining transparency and ensuring the continued stability of its products.
