Key Takeaways
Why is USDe still a risk despite the isolated Binance de-peg?
The isolated de-peg triggered a broader contagion and can still happen without proper risk management.
Will the industry learn from Friday’s flash crash?
It was a necessary stress test, sparking discussion among crypto leaders on the way forward.
OKX founder Star Xu has called for a reassessment of some of the risks that triggered the crypto crash on 10 October.
In a statement, Xu singled out Ethena’s USDe, adding that its de-pegging risk can cause market-wide contagion like the Friday bloodbath. As a result, it should be treated as a ‘tokenized hedge fund,’ not a stablecoin.
“It’s important to remind the market that USDe should not be viewed as a 1:1 pegged stablecoin — it’s a tokenized hedge fund.”
Although he is an early investor in Ethena, Xu believes that USDe isn’t designed to hold a hard peg to USD. Hence, robust risk controls are needed, or else everything could go bust in minutes.
“Treating USDe as a simple 1:1 stable asset could introduce systemic risks to the entire crypto industry in the future.”
Source: X
A painful lesson for leveraged traders
Xu’s statement was a response to a report by Ethena founder Guy Young. According to Young, last Friday’s USDe price dislocation was “not a true de-peg,” but an isolated case in Binance.
USDe is designed to track the U.S dollar. However, it de-pegged and dropped by 35% on the Binance exchange and took a while before regaining the peg.
The aftermath? Collateral swiftly fell below risk levels, triggering an escalated bloodbath for leveraged traders. It was a painful lesson on thin order books and microstructure. A whopping $19 billion worth of positions were wiped out in minutes – The largest in history, dwarfing the FTX collapse and the Covid events.
Altcoins dropped by over 90% and access to Binance fluctuated, blocking market makers (MM) from coming to the rescue (bringing liquidity to solve the depeg).
Haseeb Qureshi, Partner at VC Dragonfly, described the situation better. He equated it to a fire breakout, with MMs as firefighters.
“It’s like a fire broke out on Binance, but all of the roads were blocked and firefighters couldn’t make their way in. This caused a wildfire to break out on Binance, but pretty much everywhere else.”
On-chain venues like Hyperliquid reacted with ruthless efficiency via auto-deleveraging (ADL). Positions were forcefully closed at punitive rates to ensure the platform is free from debt.
At the time of writing, Binance had repaid over $280M to victims during the USDe de-peg. Especially traders that had coin margins (Who set USDe, and other coins as collateral).
That being said, ENA recovered by over 10% like the rest of the market, with key players betting on further recovery. However, the overall market sentiment was still red at press time – A sign of short-term market caution.
Source: Santiment
