USDe: Nearly 70% Shrinkage from Peak One Year After the '1011 Crash'

USDe once ranked as the third largest stablecoin due to its delta-neutral hedging mechanism, but its scale has shrunk following the '1011 crash' in 2025.

Written by: Conflux

Stablecoins are not a field where everyone has a chance. According to statistics from ARK Invest analyst Lorenzo Valente, the number of stablecoins with a market capitalization exceeding $1 billion has only increased from single digits to 12 in four years; those with a market cap over $10 billion peaked at four in 2022, and now only Tether and Circle remain. As the threshold rises, the number of players decreases dramatically, which is a typical characteristic of network effect assets: whether exchanges, payment networks, and DeFi protocols are willing to integrate depends on whether the scale is already large enough.

This series aims to track: who is maintaining the thresholds they have already occupied, who is trying to break the rules and climb higher, and in which direction regulation and capital are pushing this competition.

On October 11, 2025, the crypto market experienced one of the largest liquidation events in history. During this market storm known as the '1011 crash', CoinGlass reported that the total liquidation amount across the network exceeded $19 billion, setting a historical record at that time. The price of USDe on Binance once dropped to $0.65.

This stablecoin, which was the third largest globally at the time, initially supported its $1 peg through hedging trades rather than cash reserves. A year later, its circulating scale has fallen from about $14.7 billion to less than $5 billion, dropping to fifth place, and what supports it has changed.

Initial Design

USDe was issued by Ethena Labs, the developer of the synthetic dollar protocol, and launched in February 2024. The founder and CEO is Guy Young, with early investors including crypto venture capital Dragonfly, Binance's investment arm Binance Labs, cryptocurrency exchange Bybit, and OKX's investment arm OKX Ventures.

Its initial design did not rely on cash and U.S. Treasury bonds to directly support $1, nor was it an over-collateralized vault like DAI or USDS under Sky (formerly MakerDAO), but rather a 'delta-neutral' hedging mechanism: Ethena constructed the spot side with crypto assets like ETH and related staked assets while establishing corresponding short positions on exchanges to hedge against price fluctuations of the underlying assets.

This type of 'spot plus short' arbitrage has been done by hedge funds and market makers for many years, and Ethena turned it into a token that can circulate on-chain. The returns mainly come from two parts: the native yield of the staked assets and the funding fee income from the short contracts, both of which together constitute the source of income for users holding the staked version sUSDe.

'No cash' describes USDe's initial design, not its subsequent complete reserve structure. Ethena's governance report from August 2025 shows that about 54% of USDe's collateral is stablecoin-backed assets, while about 46% is related to delta-neutral strategy positions.

How Scale Rose to Third

From 2024 to 2025, the overall crypto market strengthened, and the funding rates for perpetual contracts maintained positive values during many periods, allowing the short side to earn funding fee income, which also boosted USDe's returns.

The leverage cycle in DeFi further increased the scale. The industry referred to the strategies built around Ethena's assets on Aave and Pendle as 'Aavethena': users deposited related assets as collateral on Aave, borrowed funds, and continued to allocate USDe-related assets; some also traded Pendle's principal and yield tokens, combining yield strategies with borrowing leverage.

According to industry research firm Stablecoin Insider, from May to August 2025, the total locked value of the Pendle protocol rose from about $3 billion to $10 billion. By September, USDe and its derivatives accounted for about 75% of Pendle's total locked value.

Before the '1011 crash', USDe's circulating scale was about $14.7 billion, accounting for about 5% of the entire stablecoin market, second only to USDT and USDC.

The Day of $0.65

The impact of this liquidation quickly spread to the entire crypto market. Research firm 10x Research estimated that in the weeks following the crash on October 10, 2025, the total market capitalization of the crypto market decreased by approximately $1.3 trillion. This extreme market condition also brought USDe into the spotlight.

The price of USDe on Binance once dropped to $0.65, while on Bybit it fell to about $0.92, and the on-chain pool prices on major trading platforms generally maintained around $0.99.

According to a review from Ethena's governance forum, Binance's internal oracle at the time only used its own order book prices as the pricing basis for USDe, amplifying the price deviation during the extreme market conditions. Meanwhile, some trading firms faced withdrawal restrictions, further limiting cross-platform arbitrage.

From October 10 to 11, about $1.9 billion of USDe redemptions were processed. Analysts from crypto media Blockworks commented that the large redemption was handled quickly, demonstrating strong resilience in the mechanism.

However, this only indicates that the redemption channels and reserve system withstood the pressure during that event. Whether users can redeem through the protocol, whether they can sell on exchanges at prices close to $1, whether the value of reserve assets is sufficient to cover liabilities, and whether reserve assets can be liquidated in a concentrated redemption are four different matters.

Redemptions Continued, Money Left

The continuation of redemptions does not mean that confidence has not been damaged.

On October 9, 2025, USDe's circulating volume was about $14.7 billion, which dropped to about $9.2 billion by the end of the month; by the end of December, the cumulative net outflow was about $8.3 billion, and the circulating scale fell to about $6.3 billion. The governance token ENA also dropped about 62% during the same period, falling below $0.2.

The reasons for the outflow of funds were not just panic. After the liquidation, the funding rates for perpetual contracts dropped significantly, and the short side could no longer steadily earn funding fee income; positions that had leveraged in protocols like Aave were liquidated, and redeeming USDe became one of the steps for some users to unwind related positions.

During the same period, yield-bearing stablecoin products like sUSDS under Sky and syrupUSDC from institutional lending platform Maple Finance attracted capital inflows.

Hedged Positions Down to 1%

In 2026, Ethena gradually adjusted the reserve composition of USDe. According to Ethena's governance report, the proportion of basis trading positions in reserves was 11.4% at the end of March 2026, 13.3% at the end of April, and dropped to about 1% by the end of June. The basis trading metrics here are not entirely comparable to the perpetual contract-related positions in the August 2025 report.

By the end of April 2026, about 57.2% of the reserves were liquid stablecoins, 29.3% were DeFi lending positions, and institutional lending accounted for about 0.3%; by the end of June, the proportion of institutional lending rose to about 6.9%, and tokenized collateral loan certificates (CLOs) and other assets appeared in the reserves.

Ethena also proposed four decentralized directions: expanding tokenized assets beyond short-term U.S. Treasury bonds, extending the delta-neutral framework to stocks and commodity perpetual contracts, expanding institutional lending, and exploring prime brokerage-style lending for trading firms.

Institutional lending is one important new path. Ethena began allocating part of the stablecoins in reserves to institutional credit, participating in over-collateralized loans through partner institutions. The related arrangements involve different functions such as loan initiation, collateral management, and third-party custody, with specific risks depending on the loan structure and the responsibilities of each party.

Anchorage Digital Bank also serves as the U.S. issuer of Ethena's institutional stablecoin USDtb. On August 19, 2026, institutional broker FalconX announced a partnership with Ethena to provide about $1 billion in secured financing arrangements through a bankruptcy-remote special purpose vehicle, with funds used for over-collateralized institutional credit.

As the proportion of basis trading positions decreases, the risk focus of USDe is shifting from funding rates and counterparty risks to broader asset allocation risks, including DeFi protocol risks, the creditworthiness of institutional borrowers, and the liquidity of loan collateral in extreme market conditions.

The proportion of sUSDe in USDe's circulating volume is also declining. Ethena's governance report from September 2025 showed that the scale of sUSDe was about $6.15 billion, while the total supply of USDe was about $14.5 billion, accounting for about 43%; according to industry analysis compiled by DefiLlama, this proportion was about 27% in August 2026.

Money Changed Hands

In 2026, USDe's scale did not return to the levels before the major liquidation. In mid-March, it was about $5.92 billion; by August 22, according to DefiLlama data, the circulating scale was about $4.1 billion, ranking fifth among stablecoins, accounting for about 1.33% of the entire market. At its peak, it was the third largest stablecoin, accounting for about 5%; on September 19, market websites showed its scale rebounding to about $4.8 billion.

Returns are no longer at the previous levels. According to DefiLlama data, USDe's annualized yield exceeded 50% in early March 2024, dropping to about 4.3% by late December 2025. Both figures are annualized data at specific points in time and do not represent the actual yields for the corresponding months.

The sources of funds are also changing. One of the main forces driving the growth of USDe's scale in the past was the circular leverage strategies built around it on Aave and Pendle; now, Ethena is expanding channels for institutional investment management and payments.

USDe has been integrated into BlackRock's Aladdin investment management platform and included in the collateral system of Robinhood's crypto asset yield products for U.S. retail brokers. These integrations belong to platform access and product integration and do not represent that BlackRock directly holds or endorses USDe.

In September, Ethena began to expand into payment scenarios. On September 1, Ethena launched the self-custodial financial application Ethena Pay running on Avalanche, which is still in the testing phase. The product supports dollar balance yields and cashback for card spending, with the highest balance yield at 6%, but includes adjustable promotional rewards and does not guarantee interest; regular cashback for spending is up to 5%, payable in AVAX.

On September 11, USDe and sUSDe were launched on the Tron network, further expanding the multi-chain coverage of Ethena's products.

The major liquidation a year ago tested USDe's hedging mechanism. The redemption channels withstood the pressure, but funds continued to flow out in the following months.

A year later, Ethena has reduced the basis trading positions to a small part of the reserves, allocating more funds to stablecoins, DeFi lending, institutional loans, and tokenized credit assets. The benefit is that it no longer relies entirely on perpetual contract funding rates, while the cost is that risks have expanded from the trading market to the creditworthiness of borrowers, loan collateral, and the liquidity of credit assets.

The next time a redemption wave of $1.9 billion occurs, can loans arranged through institutions like Anchorage and Maple be converted back to cash as quickly as closing a short position?