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, reaching 65 cents on Binance.
However, this dramatic dislocation was limited to Binance and not the global decoupling from USDe, as conversations on social media suggest.
Most USDe trading occurs on decentralized platforms like Fluid, Curve, and Uniswap, places that hold hundreds of millions of dollars in liquidity.
By contrast, Binance only has tens of millions in USDe liquidity. Price deviations on Curve were less than 100 basis points, which is consistent with the slight volatility in USDC and USDT on Binance. On Bytbit, USDe fell only moderately, to around 92 cents on Bybit, a stark contrast to Binance’s decline.
So what went wrong at Binance? Firstly, unlike Bybit and other exchanges with direct dealer relationships that enable seamless USDe minting and redemption on their platforms, Binance lacked this connection. This absence prevented market makers from quickly conducting a peg arbitrage, as Binance’s infrastructure crashed due to volatility, thus failing to restore equilibrium during liquidation.
Another issue was Binance’s oracle referencing prices from its own relatively illiquid order book, leading to massive liquidations of USDe positions. Instead, it should have focused on liquidity avenues like Curve. That led to cascading automated liquidations through Binance’s unified escrow system, causing the USDe price to drop sharply.
Dragonfly Managing Partner Haseeb Qureshi put it best, as CoinDesk previously reported: “Good settlement mechanisms don’t kick in in the event of sudden failures. If you are not the primary venue for an asset (which Binance is not for USDe), then you should look at the price at the primary venue.”
Guy Young, founder of Ethena Labs, accurately described the episode as an isolated event caused by Binance and not a global decoupling.
“The serious price discrepancy was isolated to a single location, which referenced the Oracle Index in its own order book, not the deeper liquidity pool, and faced deposit and withdrawal issues during the event that did not allow market makers to come full circle,” Guy Young, founder of Ethena Labs, said on X.
According to Young, it was possible to redeem USDe when the supply fell from $9 billion to $6 billion almost instantly, without needing to unwind any core positions, demonstrating how resilient the redemption mechanism is.
Throughout the entire ordeal, USDe remained overcollateralized by approximately $66 million, as confirmed by independent witnesses, including leading firms such as Chaos Labs, Chainlink, Llama Risk, and Harris & Trotter.
In short, the USDe peg remained strong where it matters most, but Binance’s technical issues made it look like there was a de-peg.
