The recent turmoil in the cryptocurrency market has cast a spotlight on Ethena USDe, a synthetic-dollar token issued by Ethena Labs. Following a significant flash crash last Friday that led to a brief loss of its peg on Binance, OKX founder Star Xu has issued a strong warning regarding the token’s classification. He argued that treating Ethena USDe as a stablecoin could create systemic risks within the entire crypto ecosystem.
During the flash crash, Ethena USDe plummeted to approximately $0.65 on Binance, while it maintained closer to a dollar elsewhere. This dramatic decline resulted in the token’s market capitalization shrinking from $14.8 billion to $12.6 billion over just two days. In the aftermath, Binance found itself in turmoil, ultimately compensating affected traders with around $283 million due to thin order books and technical glitches that hampered market makers’ ability to respond.
Xu emphasized that Ethena USDe should not be perceived as a traditional stablecoin pegged 1:1 to the dollar. In his view, it should be regarded instead as a tokenised hedge fund that presents substantial risks. According to him, the underlying structure of USDe differs fundamentally from other stablecoins like USDT or USDC, which are typically backed by cash or short-term debt. Ethena Labs employs a delta-neutral strategy involving a combination of crypto collateral and short futures positions to keep volatility at bay—an approach that, while innovative, relies heavily on market conditions such as funding rates and futures liquidity.
The chaos that triggered the latest market crash can be traced back to an announcement by former US President Donald Trump regarding a sweeping 100% tariff on Chinese imports. This news accelerated a flight from risk assets, resulting in a staggering $20 billion decline in crypto open interest within hours. In contrast to the more severe volatility seen on Binance, other platforms like Bybit and Curve experienced only mild fluctuations in USDe’s value.
The repercussions of this series of events were felt deeply among leveraged traders, leading to nearly $19 billion in liquidations—the largest since the FTX collapse. Industry observers, such as Dragonfly partner Haseeb Qureshi, noted the chaotic nature of the situation, likening it to a fire being engulfed by blocked roads preventing firefighters from reaching it.
As the dust settles, Xu’s caution grows increasingly relevant. He underscored the importance of risk controls for exchanges accepting Ethena USDe as collateral, indicating that the treatment of the token as a conventional stablecoin could result in localized failures affecting the broader market. The call for accurate classification and a unique understanding of Ethena USDe’s mechanics seems paramount in avoiding future market disruptions.
