Is Ethena's USDe De-pegged? The Facts Are Coming to Light.

Ethena's synthetic dollar USDe dropped to 65 cents on Binance during the market sell-off on Friday; however, this was not a global de-pegging event.

Specifically, Binance's lack of direct trader relationships and its dependence on an illiquid order book exaggerated price declines and liquidations. USDe managed to remain over-collateralized during this event, and redemptions continued smoothly, preserving its value on major platforms.

The incident did not affect USDe's ongoing operations through cash and carry arbitrage that ensured its 1:1 ratio. It is important to note that the vast majority of USDe transactions occur on decentralized platforms such as Fluid, Curve, and Uniswap, which have hundreds of millions of dollars in liquidity. In contrast, USDe liquidity on Binance is limited to only tens of millions.

Price discrepancies on Curve were less than 100 basis points; this was consistent with slight fluctuations in USDC and USDT on Binance. Meanwhile, on Bybit, USDe only dropped to 92 cents, marking a sharp contrast to the major crash on Binance.

So, what went wrong on Binance? Primarily, unlike other exchanges like Bybit that have direct trader relationships, Binance lacked this connection. This caused market makers to be unable to quickly execute arbitrage transactions; thus, Binance's infrastructure struggled due to volatility and failed to maintain balance. Additionally, Binance's oracle referred to prices on its own illiquid order book, leading to significant liquidations in USDe positions.

Dragonfly's Managing Partner Haseeb Qureshi previously told CoinDesk: "Good liquidation mechanisms do not work during sudden crashes. If you are not the primary platform for an asset (which Binance is not for USDe), then you should consider the price on the main platform." Ethena Labs' founder Guy Young described the incident as an isolated situation stemming from Binance. "The price discrepancy was specific to a single platform and referred to its own order book without referencing the deepest liquidity pools. During the event, market makers faced issues with deposits and withdrawals that prevented them from closing the loop," he said.

According to Young, USDe redemption was possible with supply rapidly falling from 9 billion dollars to 6 billion dollars, indicating that there was no need to unwind any position and proving how resilient the redemption mechanism is. Throughout this time, USDe was backed by approximately 66 million dollars in over-collateralization, approved by independent auditors such as Chaos Labs, Chainlink, Llama Risk, and Harris & Trotter. In short, USDe's reputation remained strong at the most critical point; however, the technical issues on Binance made it appear as if there was a de-pegging situation.