Ethena’s synthetic dollar lost its dollar peg on Friday after crashing to $0.65 on Binance, wiping out investor confidence in what was marketed as a stablecoin with yield. The stablecoin, USDe, was built to stick to the value of the US dollar. However, the brutal market selloff hit every corner of the crypto market, making all the wrong kinds of history.
This happened just minutes after President Donald Trump announced another 100% tariff on Chinese exports, triggering a market-wide panic that pushed traders into safe havens like gold and Treasuries, aside from crypto. More than $19 billion in long crypto positions were liquidated in less than a day, with over 1.6 million traders getting wiped out, according to data from Coinglass.
Trump’s China tirade pulled the rug from under a market already slipping. By Saturday morning, Bitcoin had dropped below $110,000, down over 14% from its all-time high of around $127,600. The pace of the crash overwhelmed exchanges, with Coinglass showing that Binance was only logging one liquidation order per second, so the real damage may actually be far worse than recorded. How amazing is that?
Ethena’s USDe collapses as traders abandon risky assets
With a market cap of $14 billion, Ethena’s USDe ranks as the third-biggest digital dollar in circulation. Binance, the largest exchange worldwide, confirmed in a blog post that “our team is currently conducting a thorough review of the impacted users, the details surrounding these liquidations, and the appropriate compensation measures,” specifically mentioning USDe and two other depegged tokens.
Ethena Labs, the company behind USDe, said on X that the token is still over-collateralized, but that didn’t calm the markets. The model Ethena uses is built on a version of the basis trade, where the system tries to profit off differences between spot and futures prices. It works well when the market is moving up and funding rates, the fee paid by leveraged traders, are high. But when the bottom drops out, like it did this week, that strategy turns to dead weight.
The funding rate for Ethereum had collapsed to the lowest level seen since the yen-carry trade unwind back in August last year, which crushed the returns that backstop USDe’s 5.5% yield. It didn’t stop there. ENA, the governance token that runs Ethena’s protocol, tanked as much as 43% in 24 hours, based on data pulled from CoinGecko. Meanwhile, CoinGecko and CoinMarketCap still list USDe as a stablecoin, even after the peg broke, as is typical.
