How Binance’s USDe ‘depeg’ cost the exchange millions
Friday’s crash wiped half a trillion dollars off the crypto industry’s total market cap. With prices in freefall, traders with leveraged positions suffered over $19 billion in liquidations.
During the chaos, sparked by Donald Trump’s renewed enthusiasm for threatening China with tariffs, Ethena’s “synthetic dollar” USDe appeared to depeg to just $0.65… on Binance, at least.
Read more: Ethena offers 27% on stablecoins but where is the yield coming from?
USDe, and its yield-bearing counterpart sUSDe, prop up vast amounts of leverage, both on centralized exchanges and on-chain protocols.
Stablecoin giants Tether and Circle back USDT and USDC 1:1 with “real-world” assets such as cash and US treasury bonds. USDe, meanwhile, is collateralized by delta-neutral positions of crypto-assets.
In response to the volatility, and upon “request from the community,” Ethena reassured users on Saturday that USDe remained overcollateralized, publishing a proof of reserves update outside its regular schedule.
In fact, Ethena claims that the underlying positions made money during the crash, further collateralizing USDe.
When is a depeg not a depeg? When it’s only on Binance
USDe was integrated into Binance last month where holders earn rewards or use it as collateral for margin trading.
Binance’s reported use of internal spot price data as an oracle for USDe caused a vicious circle. As collateral was sold off, the further USDe price dropped, triggering more liquidations of USDe-backed positions.
A statement from Binance recognised the “de-pegging of certain Binance Earn products relating to USDE, BNSOL, and WBETH.”
Though it insists that this was a result, rather than a cause, of the market volatility.
Binance reimbursed some users “liquidated due to holding these assets as collateral” to the tune of around $283 million.
The statement also points to “long-standing limit orders,” triggered due to a lack of buy orders, as responsible for the extreme price drops on certain altcoins.
Ethena founder Guy Young took to X to highlight the reasons for which a pegged asset may trade off target.
Read more: Aave proposal to peg Ethena’s USDe to USDT raises concerns
Young contrasts the common “temporary dislocation in the secondary price” with the more serious “permanent impairment of the collateral,” such as the collapse of UST.
He notes that on-chain liquidity pools “saw price deviations of less than 30bps, which was in-line with USDC v USDT on Binance.” If collateral were valued using these prices, all but the most highly-leveraged positions would have escaped liquidation.
In fact, the largest on-chain money market, $40 billion lending giant Aave, actually uses a hard-coded oracle of USDe=USDT.
Read more: MakerDAO could back a billion Dai with Ethena’s ‘synthetic dollar’ USDe
Young points out that this “is clearly not appropriate in the event there is permanent impairment in the backing for USDe,” but protects against minor price discrepancies triggering a liquidation cascade.
Elsewhere on-chain, however, the depeg of WBETH did cause liquidations on BNB Chain’s Venus Protocol.
The lending platform has pledged to reimburse affected users who incurred losses within a 40-minute window on Friday.
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