Ethena’s USDe Drops $8.3B After October Crash and Loss of Confidence

TLDR

• Ethena’s USDe saw $8.3B in outflows, losing nearly half its market cap since October’s crash.
• USDe’s market cap dropped from $14.7B to $6.4B in just two months after October 10 crash.
• USDe briefly depegged to $0.65 due to an oracle issue, but stabilized around $0.9987.
• Crypto market lost $1.3T in value post-October crash, with trading volumes down 50%.

Ethena’s synthetic stablecoin, USDe, has experienced a sharp decline in market value since the major crypto market crash on October 10. The stablecoin, which relies on synthetic collateral models, has seen $8.3 billion in net outflows as investors have withdrawn due to growing concerns over leveraged and synthetic collateral systems. USDe’s market cap has been cut nearly in half, reflecting a broader trend of investor caution in the aftermath of the crash.

Market Value Decline and Loss of Confidence

USDe’s market cap stood at approximately $14.7 billion just before the October 10 crash, but it has since dropped to about $6.4 billion. This decline occurred in just over two months, as investors pulled back from the token amid growing concerns over its synthetic collateral model.

Analysts from 10x Research pointed out that the market crash marked a turning point, transitioning from a bullish phase to one characterized by deleveraging. The market crash erased $1.3 trillion in total market capitalization, or nearly 30% of the crypto market’s value at the time.

The loss of confidence in leveraged and synthetic collateral has been a significant factor in USDe’s decreased market cap. As the market stabilized after the crash, investors became increasingly wary of these models, and many sought safer, more traditional investments. The continued retreat from USDe indicates a shift in investor sentiment, driven by the volatility and risks associated with synthetic assets.

USDe’s Temporary Depeg and Market Stability

Following the October crash, USDe briefly lost its peg and dropped to about $0.65 on Binance. This deviation from its expected value was attributed to an internal oracle issue at the exchange, not to problems with USDe’s underlying collateral or protocol. 

According to Guy Young, the founder of Ethena Labs, USDe’s minting and redemption functions remained operational during the crash. Over $2 billion in USDe was redeemed across major decentralized finance (DeFi) platforms within 24 hours, with only minor price deviations elsewhere.

At the time of writing, USDe is trading close to its original value of $1, with a price of $0.9987, as per CoinMarketCap data. Despite the brief depeg, USDe has largely stabilized, indicating that the underlying mechanics of the stablecoin remained intact during the crash. However, the brief instability has contributed to the erosion of investor confidence, especially in synthetic stablecoins.

Broader Market Impact and Reduced Activity

The October crash, one of the largest liquidation events in the history of the crypto market, had a ripple effect across the industry. More than $19 billion in crypto positions were liquidated, leading to a $65 billion decline in open interest. This event caused broader market activity to slow down significantly. Since the crash, crypto trading volumes have decreased by about 50%, reflecting the reduced participation from traders and investors.

In addition, Bitcoin exchange-traded funds (ETFs) listed in the U.S. have seen approximately $5 billion in net outflows since late October. Analysts have noted that the current weakness in the market is less about retail investor capitulation and more about a deliberate pullback by regulated capital. 

As leverage and liquidity have decreased, Bitcoin has decoupled from traditional assets like equities and gold, behaving more like a high-risk asset than a macro hedge. This shift has further underscored the ongoing adjustments in the broader crypto market in response to recent events.

The post Ethena’s USDe Drops $8.3B After October Crash and Loss of Confidence appeared first on CoinCentral.