Market cap plummets after stress test
Ethena Labs’ synthetic dollar token USDe has seen its market capitalization drop by over $5 billion since the October 10 market crash. The asset experienced what many are calling a major stress test during what’s been dubbed “Black Friday” in crypto circles.
Before the flash crash that wiped out more than $19 billion in leveraged positions across the market, USDe’s market cap stood above $14.6 billion. That made it one of the largest dollar-pegged assets in the crypto space. But things changed quickly when the market turned.
Redemptions accelerate decline
Between October 10 and 11, USDe’s market cap fell sharply by about $2 billion as investors rushed to redeem their tokens. According to Ethena Labs’ documentation, each USDe redemption burns the returned tokens, which reduces the overall supply and thus the market capitalization.
Analysts noted in an Ethena governance forum post that approximately $1.9 billion in USDe redemptions were processed during that two-day period. Interestingly, they pointed out that despite the large volume, the redemptions were processed quickly, suggesting the mechanism showed what they called “extreme resilience.”
Over the rest of October, USDe lost another $3 billion in market cap, bringing it down to around $9.2 billion at the time of reporting. That’s nearly a 40% drop from its peak, which represents the sharpest decline since USDe launched in late 2023.
Binance price discrepancy raises questions
While it’s difficult to pinpoint the exact reasons for the massive redemptions, the token faced increased scrutiny after October 10 when its price on Binance briefly plunged to about $0.65. This dramatic price crash below the $1 peg didn’t happen on other platforms – on Curve Finance and other decentralized protocols, USDe’s price stayed close to its intended value during the market volatility.
The price discrepancy on Binance led to a wave of liquidations on the exchange and widespread criticism of Binance’s pricing oracle setup. Binance later responded in a blog post, distancing itself from those accusations and stating that its core futures and spot matching engines remained operational during the crash.
Leverage concerns surface
Sam MacPherson, CEO of Phoenix Labs, suggested part of USDe’s decline could be linked to excessive leverage. He noted the token had become “over-leveraged at 15 billion” and that a more organic size for USDe would be around $6-7 billion. When the market turned, he argued, it was always going to drop to that more sustainable level.
It’s worth noting that just before the crash, USDe deposits on Binance had surged to $735 million after the exchange began offering 12% APR on USDe through its Binance Earn product. The timing raises questions about whether the high yields attracted more speculative capital than the system could comfortably handle during stress periods.
Ethena Labs hadn’t responded to requests for comment by the time this was written. The situation shows how even well-designed stablecoin mechanisms can face significant challenges during extreme market conditions, particularly when combined with external factors like exchange-specific issues and leverage dynamics.
