The Ethena USDe 'Depeg': A Binance-Specific Flash Crash in Crypto's Largest Liquidation Event

On October 10, 2025, the cryptocurrency market endured its most brutal liquidation cascade in history, with nearly $19 billion in positions wiped out amid cascading sell-offs and extreme volatility.

In the midst of this chaos, Ethena's synthetic stablecoin USDe, a yield-bearing asset pegged to the U.S. dollar briefly plunged to as low as $0.65 on Binance, sparking widespread panic and drawing uneasy comparisons to the infamous 2022 Terra UST collapse.

However, industry experts and Ethena Labs quickly clarified that this was not a systemic depeg of the protocol itself but an isolated dislocation confined to Binance due to exchange-specific technical failures.
By the following day, USDe had fully recovered its $1 peg, underscoring the resilience of its underlying mechanism while exposing vulnerabilities in centralized exchange infrastructure.

USDe, launched by Ethena Labs, is the third-largest stablecoin with a market capitalization hovering around $14 billion.Unlike traditional fiat-backed stablecoins such as Tether's USDT or Circle's USDC, USDe is a synthetic dollar backed by delta-hedged positions in staked Ethereum (ETH) and other collateral.

This design allows it to offer holders an attractive annual percentage yield (APY) of approximately 5.5%, derived from funding rates and staking rewards. While this innovative structure has propelled USDe's rapid growth, it also makes the token more susceptible to market turbulence, relying heavily on arbitrageurs and derivatives to maintain stability.

The Timeline: From Market Crash to Localized Panic

The turmoil began in the afternoon on October 10, triggered by a confluence of factors including a sharp altcoin sell-off, deeply negative ETH funding rates hitting multi-year lows, and broader economic fears amplified by U.S. tariff announcements.

This perfect storm led to cascading liquidations across major exchanges, overwhelming systems and causing temporary disruptions.

On Binance, USDe's price deviated dramatically, dropping 24–38% from its peg to between $0.65 and $0.68.

Reports suggest attackers exploited Binance's "Unified Account" feature, dumping up to $90 million in USDe and profiting around $192 million from short positions, which exacerbated the drop and triggered up to $1 billion in platform-specific liquidations. The event lasted roughly 40 minutes, but its intensity was confined largely to Binance.

In contrast, the depeg was far less severe elsewhere. On Bybit, USDe only wicked down to $0.95 before swiftly recovering. On Curve—the primary liquidity venue for USDe with hundreds of millions in standing liquidity—the deviation was a mere 0.3% (30 basis points).

DeFi protocols like Aave even hardcoded USDe at $1, insulating them from any ripple effects.

By October 11, USDe had fully repegged across all venues, with Ethena processing over $2 billion in redemptions in just 24 hours without any downtime. Remarkably, the protocol's collateral increased by about $66 million, thanks to unrealized gains from short perpetual positions.

Why Binance? Unpacking the Exchange's Failures

The disproportionate impact on Binance stemmed from a series of infrastructure and design shortcomings.

First, the exchange's internal oracle relied solely on its own thin order book—typically holding only tens of millions in liquidity—rather than external feeds from more robust venues like Curve.

This led to premature liquidations, creating a vicious feedback loop where cascading sells further depressed the price. Compounding the issue, Binance experienced widespread API failures, frozen deposits and withdrawals, and a lack of direct mint/redeem integration with Ethena.

Unlike competitors such as Bybit, which have primary dealer relationships allowing on-platform arbitrage, Binance's setup prevented market makers from efficiently stepping in to restore the peg. Other stablecoins, like USDC, also saw minor dips on Binance during the same period, but nothing as extreme as USDe's plunge.

As Dragonfly Capital's managing partner Haseeb Qureshi succinctly put it on X: "USDe did not depeg, Binance did." This sentiment echoes across analyses, highlighting how exchange-specific instability, rather than protocol flaws, drove the event.

Several other notable market participants echoed concerns about this sentiment.

For example, Raagulan Pathy, Founder and CEO of KAST card, acknowledges Binance's historical dominance (accounting for over 80% of crypto volume) but insists that liquidity mismatches alone do not excuse the scale of the event. He draws direct parallels to USDC's depeg, stressing USDe's thin reserves as a "glaringly huge issue" and recommending a massive capital raise over distractions like decentralized automated traders (DATs).

Luca Prosperi, CEO of M0, dismissed peg discussions outright in response to Qureshi's defense of USDe: "Peg is meaningless concept for USDe period. USDe is not a money market asset period." His aggressive stance, calling questions about the peg "stupid" and criticizing focus on "secondary volatility," suggests he views USDe as fundamentally different from traditional stablecoins that maintain strict $1 parity. By explicitly stating USDe is "not a money market asset," Prosperi implies it should be evaluated through a different lens, though he stopped short of specifying what framework should apply.

The view of USDe not being a stablecoin resonated with skeptics in the replies to Qureshi's thread, where commenters argued USDe should be repositioned as a "tokenized hedge fund" or "structured product" better valued by net asset value (NAV) rather than strict dollar parity. These responses highlighted concerns about USDe's exposure to ETH volatility and counterparty risks on centralized exchanges like Binance. Such risks, they argued, make traditional stablecoin peg expectations inappropriate for an asset with such a fundamentally different risk profile.

Others voiced support for Qureshi. Sam Kazemian, founder of Frax, contributed a definitional perspective to the debate, distinguishing between "peg" and "price." He argued that the peg should be defined by the issuer's willingness to redeem at $1.00, while price refers to secondary market activity on exchanges. Under this framework, what occurred on Binance represented a price divergence on a secondary venue rather than a breakdown of the peg itself. Kazemian summarized his position: "Peg=the issuer only. Price=secondary source."

Ethena's Swift Response and Demonstrated Resilience

Ethena Labs founder Guy Young took to X to address the incident, emphasizing that it was "an isolated issue not tied to fundamentals," with mint and redeem functions operating "perfectly" throughout.

The protocol remained overcollateralized at around $9 billion, as verified by third-party attestors including Chaos Labs, Chainlink, and Llama Risk.

In fact, Ethena profited from the volatility by unwinding unprofitable perpetual positions, bolstering its reserves to approximately $473 million in stablecoins.

In the aftermath, Ethena released detailed guidelines for partner exchanges on oracle design, recommending the use of external price feeds like Curve and enabling direct mint/redeem access to mitigate future risks.

The team also confirmed no disruptions to DeFi integrations, including Aave, Morpho, and Pendle.

Accountability and Compensation Plan

Binance acknowledged the mishap, attributing it to "extreme market conditions" that affected USDe alongside other assets like BNSOL and WBETH.

The exchange announced a $283 million compensation package for affected users in Futures, Margin, and Loan products who held these assets as collateral between 21:36 and 22:16 UTC on October 10. Those who purchased depegged tokens at discounts were allowed to retain them.

Co-founder Yi He and CEO Richard Teng issued public apologies, with the platform committing to a system review.

Broader Market Repercussions and Historical Parallels

The event rattled markets, with Ethena's governance token ENA plummeting up to 43% before staging a partial recovery as confidence in the protocol's fundamentals returned.

Ethena experienced about $1.25 billion in total value locked (TVL) outflows amid short-term panic, but this stabilized quickly. Critics inevitably compared it to Terra's UST, which spiraled into an algorithmic death loop in 2022, erasing billions.

However, key differences abound: USDe's quick recovery, sustained overcollateralization, and functional redemptions prevented any such cascade.

For context, a true depeg—like USDC's during the 2023 banking crisis—saw uniform price drops across all venues with halted redemptions.

The incident serves as a stark reminder of centralized finance (CeFi) risks during stress events, particularly around oracle dependencies and liquidity bridging. It also highlights the importance of diversifying across venues and scrutinizing collateral mechanisms.

Current Status and Forward Outlook

As of October 13, 2025, USDe is trading steadily at $1.00, with 24-hour trading volume exceeding $551 million and a circulating supply of around 13 billion tokens. The sUSDe APY stands at about 5.05% based on recent weekly averages, with no lingering issues reported. Ethena continues its expansion, including recent integrations on Avalanche and Sui, positioning USDe as a core asset in emerging DeFi ecosystems.

This episode, while alarming, ultimately affirmed Ethena's design under pressure and prompted necessary improvements in exchange protocols. For investors and users, it underscores the need to monitor funding rates, oracle integrations, and platform risks closely—especially in a market where volatility can strike without warning.

As crypto matures, events like these may become invaluable stress tests, paving the way for more robust infrastructure.