During the cryptocurrency market crash, the world's third-largest stablecoin USDe briefly depegged from the US dollar

The yield-bearing stablecoin USDe from the cryptocurrency project Ethena temporarily lost its peg to the US dollar during a market downturn, highlighting the vulnerability of new stablecoin mechanisms under extreme market conditions.

On Friday, USDe dropped to 65 cents on the Binance exchange before quickly recovering to near dollar price levels. This token, referred to as a "synthetic dollar," currently offers holders a yield of 5.5% and has a market capitalization of $14 billion, making it the third-largest stablecoin globally.

The market crash was triggered by threats of tariffs from Trump, prompting investors to flock to safe-haven assets such as gold and US Treasury bonds. According to Coinglass data, over $19 billion in bullish cryptocurrency positions were liquidated in the past 24 hours, affecting more than 1.6 million traders who faced forced liquidations.

Binance stated that it is conducting a comprehensive review of affected users, liquidation details, and appropriate compensation measures. Ethena Labs responded on social media, stating that the token remains over-collateralized.

De-pegging Event Shakes Market Confidence

Although the price fluctuation of USDe was brief, it was enough to raise concerns among investors. BTC Markets analyst Rachael Lucas stated:

Even a brief de-pegging of a stablecoin can shake the market. Traders rely on them for liquidity, lending, and collateral, so any loss of confidence can trigger liquidations and spread to broader cryptocurrency volatility.

Binance mentioned in a blog post that, in addition to USDe, two other tokens also lost their peg. The exchange stated that it is thoroughly reviewing affected users and formulating corresponding compensation measures.

Ethena Labs' governance token ENA was also impacted, with a drop of up to 43% in the past 24 hours according to CoinGecko data.

Unique Yield Mechanism Undergoing Stress Test

USDe generates yield through a basis trading strategy, leveraging price differences between spot and futures markets to obtain returns. The token is backed by a reserve of digital assets, including stablecoins like USDT and USDC.

When the cryptocurrency market is booming and funding rates are high, the mechanism relied upon by Ethena can generate extremely high yields. Funding rates are the interest paid by bullish traders for leveraged futures positions. However, during a massive sell-off, this mechanism faces severe challenges.

In the current market downturn, Ethereum's hourly funding rate has dropped to its lowest level since the closure of yen arbitrage trades in August 2024. This decline threatens the yield rate of USDe.

The yield generation structure of USDe is a key differentiating factor from its competitors USDT and USDC. The latter two are the largest stablecoins globally, primarily backed by highly liquid assets such as US Treasury bonds.

Despite structural differences, cryptocurrency data tracking agencies CoinGecko and CoinMarketCap still classify USDe as a stablecoin. This classification reflects the market's acceptance of new stablecoin mechanisms but also highlights the challenges of maintaining stability under extreme market conditions