Ethena Labs’ artificial dollar-pegged token Ethena USDe (USDE) has misplaced greater than $5 billion in market capitalization because the October 10 market crash after the asset underwent an enormous stress check.
Earlier than the “Black Friday” flash crash (which worn out over $19 billion of leveraged positions throughout the market, making it the biggest liquidation occasion in crypto historical past), USDE’s market capitalization was over $14.6 billion.
Ethen USDe’s market capitalization plummeted by about $2 billion between October 10 and 11 as traders rushed to redeem their USDE and exchanged the tokens for the underlying collateral. In accordance with Ethena Labs’ documentation, every redemption of USDE consumes the returned USDE, which may cut back the general token provide and, in flip, market capitalization.
As Blockworks analysts famous in an Oct. 15 publish to the Ethena Governance Discussion board, “roughly $1.9 billion in USDe redemptions have been processed between Oct. 10 and 11.” Analysts added that the big quantity of redemptions have been processed shortly and famous that Ethena’s mechanism confirmed “extraordinarily excessive resilience.”
“(Redemptions) have been $1.6 billion in someday and $1.9 billion within the two days earlier than and after the crash, and it is practical to assume that almost all of those redemptions happened inside hours.”
Ethena USDe misplaced one other $3 billion in market capitalization over the rest of October, reaching roughly $9.2 billion at press time.
Ethena USDe market capitalization in October. Supply: CoinGecko
Binance flash crash
The almost 40% drop in market capitalization is the steepest decline since Etena USDe’s launch in late 2023. Though it’s tough to say the precise purpose for the mass redemptions, the token gained consideration after October 10, when the worth on Binance, the biggest centralized cryptocurrency alternate (CEX), dropped to round $0.65 at one level.
As The Defiant beforehand reported, USDE’s dramatic value crash under $1 on Binance (which didn’t happen on different platforms) triggered a wave of liquidations on CEX, leading to widespread criticism of Binance’s pricing oracle settings. Notably, with Curve Finance and different decentralized protocols, the worth of USDE remained near the $1 peg throughout market volatility.
In an Oct. 12 weblog publish, Binance distanced itself from the accusations, as an alternative saying that the alternate’s core futures, spot matching engine, and API buying and selling “remained operational” throughout the crash.
Sam McPherson, CEO and co-founder of Phoenix Labs, recommended in a November 2nd X publish that a few of USDe’s decline could also be associated to overleverage, noting that the token is “overleveraged by 15 billion.”
“As I stated, the extra natural measurement of USDe is round $6 billion to $7 billion, so at any time when the market turns round, it is going to reflexively fall again to natural measurement,” McPherson wrote.
Defiant reached out to Ethena Labs for touch upon this transformation, however didn’t obtain a response as of press time.
As The Defiant beforehand reported, in late September, simply someday after CEX started providing 12% annual curiosity on USDE via its Binance Earn product, USDE deposits on Binance skyrocketed to $735 million.
