No, Ethena’s USDe Didn’t De-peg

During Friday’s turbulent market sell-off, Ethena’s synthetic dollar, USDe, which maintains its 1:1 peg to the USD through cash-and-carry arbitrage, briefly dropped, hitting 65 cents on Binance.

However, this dramatic dislocation was confined to Binance as opposed to the global de-pegging of the USDe as social media chatter suggests.

Most trading of USDe occurs on decentralized platforms such as Fluid, Curve, and Uniswap – venues boasting hundreds of millions of dollars in liquidity.

By contrast, Binance holds only tens of millions in USDe liquidity. Price deviations on Curve were less than 100 basis points, consistent with the mild volatility in USDC and USDT on Binance. On Bytbit, USDe dipped only moderately, to around 92 cents on Bybit, a stark contrast to Binance’s plunge.

So what went wrong on Binance? Firstly, unlike Bybit and other exchanges with direct dealer relationships enabling seamless minting and redemption of USDe on their platforms, Binance lacked this connection. This absence prevented market makers from performing peg arbitrage swiftly as Binance’s infrastructure buckled under volatility, thus failing to restore balance during the sell-off.

Another issue was Binance’s oracle, which referenced prices from its own relatively illiquid order book, causing massive liquidations of USDe positions. Instead, it should have focused on liquid avenues like Curve. That led to automated liquidations cascading through Binance’s unified collateral system, leading to an exaggerated price drop in USDe.

Dragonfly’s Managing Partner Haseeb Qureshi put it best, as CoinDesk previously reported: “Good liquidation mechanisms don’t trigger on flash crashes. If you are not the primary venue for an asset (which Binance is not for USDe) then you should look at the price on the primary venue.”

Guy Young, founder of Ethena Labs, aptly described the episode as an isolated event caused by Binance and not a global de-peg.

“The severe price discrepancy was isolated to a single venue, which referenced the oracle index on its own orderbook, not the deepest pool of liquidity, and was facing deposit and withdrawal issues during the event which did not allow market makers to close the loop,” Guy Young, founder of Ethena Labs, said on X.

According to Young, it was possible to redeem USDe as the supply dropped from $9 billion to $6 billion almost instantly, without any basis positions needing to be unwound, demonstrating how resilient the redemption mechanism is.

Throughout the whole ordeal, USDe remained overcollateralized by approximately $66 million, as confirmed by independent attestors, including leading firms such as Chaos Labs, Chainlink, Llama Risk and Harris & Trotter.

In short, USDe’s peg stayed strong where it matters most, but Binance’s technical issues made it look like there was a depeg.