In a tumultuous market episode, Ethana’s yield-bearing stablecoin, USDe, deviated from its typical 1:1 dollar peg as a result of a sharp sell-off following U.S. President Donald Trump’s alarming announcement of a 100% additional tariff on China. During this intense period, USDe plummeted to around 65 cents on the Binance exchange before swiftly recovering its parity with the U.S. dollar. This market turmoil is being labeled as one of the largest liquidation events in the crypto sector, with more than $19 billion wiped out in liquidations within just 24 hours.
USDe, which offers holders a 5.5% yield, is structured to be backed by a diverse array of cryptocurrencies utilizing a basis trade strategy. This approach seeks to exploit price discrepancies between spot and futures markets. As the market reacted to Trump’s unexpected tariff announcement, investors flocked to safer investment options, such as gold and U.S. Treasuries, increasing volatility across the board.
According to crypto trader and economist Alex Krüger, the impact of USDe’s temporary dip was notably significant, particularly because other tokens that are not as actively traded on centralized exchanges maintained their value better and were able to recover more quickly. The difference in trading activity on platforms like Binance and Bybit, which updated prices to reflect real-time trading, contrasted with lending protocols like Aave, where USDe was hardcoded at $1, effectively shielding them from some immediate repercussions of the temporary devaluation.
Ethena Labs addressed concerns through a social media post, assuring users that USDe remains over-collateralized despite the market turbulence. The post elaborated that operational functionalities such as minting and redeeming have continued without interruption, and the project confirmed that the widespread liquidations taking place were primarily affecting the secondary market price of USDe.
The company also acknowledged that the persistent trading of perpetual contracts below spot prices led to unexpected unrealized Profit and Loss (uPNL) for USDe, as Ethena was short these contracts, a situation currently being managed to benefit the overall protocol.
In the wake of these developments, Binance indicated that it is reviewing impacted accounts and has plans to introduce appropriate compensation measures for affected users. Meanwhile, Ethena’s governance token, ENA, faced significant declines during the market slide, initially dropping as much as 40% before beginning to recover, but still lingering nearly 25% lower in value over a 24-hour stretch.
