Ethena Labs’ artificial dollar-pegged token Ethena USDe (USDE) has misplaced over $5 billion of its market capitalization for the reason that Oct. 10 market crash, after the asset skilled a serious stress check.
Earlier than the “Black Friday” flash crash — which worn out over $19 billion in leveraged positions throughout the market, turning into the biggest liquidation occasion in crypto up to now — USDE’s market cap stood above $14.6 billion.
Ethen USDe’s market cap fell sharply by about $2 billion on Oct. 10-11 as buyers rushed to redeem their USDE, exchanging their tokens for the underlying collateral. In line with Ethena Labs’ documentation, every USDE redemption burns the returned USDE, which may scale back the general token provide, and thus the market capitalization.
As Blockworks analysts famous in an Oct. 15 Ethena governance discussion board submit, “roughly $1.9 billion in USDe redemptions had been processed between the tenth and the eleventh of October.” The analysts added that the massive redemption quantity was processed rapidly, noting Ethena’s mechanism confirmed “excessive resilience”:
“Whereas it [redemption volume] was for $1.6B in a single day and $1.9B within the two days earlier than and after the crash, it’s possible reasonable to contemplate that the majority of this redemption occurred in lower than a number of hours.”
Ethena USDe misplaced one other $3 billion in market cap over the remainder of October, reaching about $9.2 billion at press time.
Ethena USDe market cap in October. Supply: CoinGecko
The Binance Flash-Crash
The almost 40% drop in market cap is the sharpest one since Ethena USDe’s launch in late 2023. Whereas it’s exhausting to say what the precise causes for the huge redemptions are, the token did come underneath elevated scrutiny after Oct. 10, when its worth on crypto’s largest centralized change (CEX) Binance briefly plunged to about $0.65.
As The Defiant reported earlier, USDE’s dramatic worth crash under $1 on Binance — which didn’t happen on different platforms — led to a wave of liquidations on the CEX, leading to widespread criticism of Binance’s pricing oracle setup. Notably, on Curve Finance and different decentralized protocols, USDE’s worth stayed near its $1 peg through the market volatility.
In a weblog submit on Oct. 12, Binance distanced itself from these accusations, saying as a substitute that the change’s core futures and spot matching engines and API buying and selling “remained operational” through the crash.
Sam MacPherson, CEO and co-founder of Phoenix Labs, advised in an X submit on Nov. 2 that a part of USDe’s decline is also linked to extreme leverage, noting that the token had change into “over-leveraged at 15 billion.”
“As I mentioned the extra natural dimension for USDe is round 6-7b and so when the market turns it was all the time going to reflexively drop to the natural dimension,” MacPherson wrote.
The Defiant reached out to Ethena Labs for touch upon the shift, however hasn’t heard again by press time.
As The Defiant reported earlier, in late September, USDE deposits on Binance surged to achieve $735 million only a day after the CEX started providing 12% APR on USDE through its Binance Earn product.
