The myth of synthetic stablecoins has been hit hard again! Ethena USDe flash crashed to $0.65, how did the largest liquidation wave in history tear apart the pegging mechanism?

During the "Black Friday disaster" from late night on October 10 to early morning on the 11th, the crypto market experienced the largest liquidation wave in history, which also affected the synthetic stablecoin Ethena USDe that was originally aimed to peg at 1 USD. On the USDT trading pairs of mainstream CEXs, USDe once plummeted to 0.65 USD, and although it quickly rebounded afterwards, this event profoundly reminded investors: cascading liquidations can instantly tear apart the pegging mechanism of synthetic stablecoins. This depeg originated from extreme dumping caused by macro uncertainty, a strong reversal of the funding rate, and the high concentration risk of USDe as leveraged Margin.

Depeg Trigger: Macroeconomic Panic and $19.1 Billion in Liquidations

· Trump's Tariffs Ignite Risk Aversion Surge: The source of this disaster was U.S. President Trump reiterating on the evening of October 10, Beijing time, his plan to impose 100% tariffs on Chinese goods, triggering a global risk asset dumping wave. Bitcoin and Ethereum both experienced a big dump after 5 PM that evening, leading to a rapid liquidation of a large amount of leveraged funds.

· The largest liquidation acceleration in history: Subsequently, an unprecedented chain liquidation occurred early the next morning, with over 19.1 billion USD in leveraged positions wiped out within the past 24 hours, where long positions suffered losses of up to 16.7 billion USD.

· Institutions Forced to Sell USDe: Due to USDe being widely used as cross Margin by large institutions, in extreme market conditions, these institutions were forced by the system to sell USDe in the spot market to meet Margin requirements due to facing forced liquidation (margin call). This concentrated selling pressure caused the price of USDe on mainstream CEX to instantaneously drop to a maximum fall of 1:0.65 against the USDT trading pair, while it even fell to a low of 1:0.63 against the USDC trading pair.

Mechanism Gap Exposure: Negative Funding Rate, Liquidity Exhaustion, and Concentration Risk

The weaknesses in the USD anchor mechanism are quickly magnified in extreme environments:

· Strong Reversal of Funding Rate: USDe relies on Delta Neutral Strategy and perpetual contract funding rate arbitrage to maintain stability. During calm periods, positive funding rates can provide stable returns; however, once panic spreads, the funding rate will flip to negative values, and the protocol will need to pay costs, thereby eroding its collateral safety margin.

· Rapid Liquidity Dwindling and Bank Run Effect: In last night's extreme market conditions, market liquidity tightened rapidly, and the spot market was unable to absorb a large amount of selling at 1 USD, thus amplifying the depeg phenomenon. Furthermore, in mainstream CEX, USDe was used as Margin by a large number of users. Once the depeg starts, in extreme market conditions, a large number of users must add Margin to avoid liquidation, resulting in continuous selling pressure on USDe. At the same time, arbitrage assets related to USDe, such as BNSOL and WBETH, also experienced a big dump, falling to 34.90 USD and 430 USD respectively, causing a huge squeezing effect on USDe.

· High address concentration amplifies risk: Even more troublesome, the top two holders of USDe control about 80% of the supply. Once the selling pressure is concentrated in the market, the degree of supply and demand imbalance is instantly amplified.

Amplifying the Cycle: Weak Confidence and Negative Feedback from Cross-Platform Correlation

· **Derivatives Linking Suppresses Spot: ** Margin liquidations not only directly suppress the spot price of the $1 peg but also drag down derivatives prices. Although Ethena states that when the perpetual contract price is lower than the spot price, its held short position will have unrealized gains, which theoretically makes the protocol "more over-collateralized."

· The secondary market only recognizes liquidity: However, secondary market traders only recognize liquidity and immediate sell prices. At that time, the price of USDe deviated from 1 USD, and arbitrageurs needed additional funds to redeem USDe and balance the price difference. During this brief time lag, panic sentiment spread rapidly.

· The minting and redemption mechanism did not fully prevent panic: Ethena emphasized in a statement at 6 AM that its minting and redemption mechanism is operating normally and that the collateral for USDe remains higher than liabilities. However, in the short term, the market shows extreme fragility in confidence. It is evident that cross-chain protocols, lending platforms, and staking contracts have repeatedly amplified USDe, and the negative feedback loop is accelerating, ultimately leading to the result of depeg.

Three Major Lessons: Survival Challenges of Synthetic Stablecoins

Looking back at the USDe depeg incident, similar to the previous failures of TerraUSD's algorithm and the traditional financial penetration of USDC, it once again left a profound lesson for the crypto market:

· Liquidity precedes collateralization ratio: For synthetic stablecoins, the current setup makes it difficult to realize value immediately, regardless of how high the nominal over-collateralization ratio is, once it encounters negative funding rates and a concentrated dumping wave. This means that its support capacity cannot be guaranteed in the short term in extreme situations.

· Concentration amplifies tail risk: The supply and distribution of USDe holders are extremely imbalanced, leading to the fact that the actions of a single or a few institutions can instantly shake the stability of the pegged price, greatly amplifying tail risk.

· Regulatory and Information Disclosure Gaps: The anchoring sources of synthetic stablecoins span the derivatives market and on-chain assets, with high complexity in their mechanisms. The existing legal framework has yet to fully cover this, making it difficult for investors to assess their dynamic Margin gaps in real-time, thus hindering systematic or timely risk prevention.

Conclusion

The flash crash event of Ethena USDe is yet another brutal test of the robustness of the synthetic stablecoin model following several recent depeg incidents involving stablecoins. It strongly proves that, regardless of how innovative the form of the stablecoin may be, its essence always relies on the two pillars of liquidity and confidence. In extreme market conditions, as long as one of these two pillars is shaken, the risks of leverage and centralization will create a negative feedback loop, and any stablecoin claiming to be "over-collateralized" may face the dilemma of its peg being torn apart.

Disclaimer: This article is for informational purposes only and does not constitute any investment advice. The crypto market is highly volatile, and investors should make decisions with caution.