During Friday’s turbulent market sell-off, Ethena’s synthetic dollar, USDe, which maintains its 1:1 peg to the dollar through cash-and-carry arbitrage, briefly fell, hitting 65 cents on Binance.
However, this dramatic dislocation has been limited to Binance, as opposed to the global unpegging of USDe, as social media discussions suggest.
Most USDe trading takes place on decentralized platforms such as Fluid, Curve and Uniswap – platforms boasting hundreds of millions of dollars in liquidity.
In contrast, Binance only holds tens of millions of dollars of USD liquidity. Price spreads on Curve were less than 100 basis points, consistent with the slight volatility of USDC and USDT on Binance. On Bytbit, USDe fell only moderately, to around 92 cents on Bybit, a stark contrast to Binance’s fall.
So, what went wrong on Binance? First, unlike Bybit and other exchanges with direct dealer relationships allowing seamless creation and redemption of USDe on their platforms, Binance did not have this connection. This absence prevented market makers from quickly making listing arbitrages as Binance’s infrastructure collapsed under volatility, thus failing to restore balance upon selling.
Another problem was Binance’s oracle, which referenced prices from its own relatively illiquid order book, causing massive liquidations of USDe positions. Instead, he should have focused on liquid routes like Curve. This led to cascading automated liquidations through Binance’s unified collateralization system, causing USDe prices to exaggerate.
Dragonfly Managing Partner Haseeb Qureshi put it best, as CoinDesk previously reported: “Good liquidation mechanisms do not trigger in a flash crash. If you are not the primary venue for an asset (which Binance is not for USDe), then you should look at the price on the primary venue.”
Guy Young, founder of Ethena Labs, rightly described the episode as an isolated event caused by Binance and not a global stall.
“The severe price divergence was limited to a single venue, which referenced the Oracle Index on its own order book, not the deepest liquidity pool, and faced deposit and withdrawal issues during the event, which did not allow market makers to close the loop,” Guy Young, founder of Ethena Labs, said on X.
According to Young, it was possible to buy back USDe as the supply increased from $9 billion to $6 billion almost instantly, without any basis positions needing to be unwound, demonstrating the resilience of the buyback mechanism.
Throughout this ordeal, USDe remained overcollateralized by approximately $66 million, as confirmed by independent attesters, including leading firms such as Chaos Labs, Chainlink, Llama Risk, and Harris & Trotter.
In short, the USDe peg remained strong where it mattered most, but Binance’s technical issues made it appear as if there had been a stall.
