Series introduction:
Stablecoins are not a track where everyone has a chance. According to statistics by ARK Invest analyst Lorenzo Valente, stablecoins with a market capitalization of more than $1 billion only increased from single digits to 12 in four years; those with a market capitalization of more than $10 billion numbered 4 at the 2022 peak, and now only Tether and Circle remain. Each step up in threshold brings a cliff-like reduction in the number of players. This 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.
What this series aims to track is: who is holding the thresholds they have already occupied, who is trying to break through the rules to climb higher, and where regulation and capital are pushing this competition.
On October 11, 2025, one of the largest liquidation events in crypto market history occurred. In this market storm known as the "1011 crash," CoinGlass statistics showed that rolling 24-hour total liquidations across the network exceeded $19 billion, setting a record at the time. The price of USDe on Binance once fell to $0.65.
This stablecoin, then the world's third-largest, was initially backed at $1 by hedging transactions rather than cash reserves. A year later, its circulating scale has fallen from about $14.7 billion to less than $5 billion, its ranking has slipped to fifth, and what supports it has also changed.
The original design
USDe is issued by synthetic dollar protocol developer Ethena Labs and launched in February 2024. Its founder and CEO is Guy Young, and early investors include crypto venture firm Dragonfly, Binance's investment arm Binance Labs, cryptocurrency exchange Bybit, and OKX's investment arm OKX Ventures.
Its original design did not rely on cash and U.S. Treasuries to directly support $1, nor was it an overcollateralized vault like DAI and USDS under Sky (formerly MakerDAO). Instead, it was a "delta-neutral" hedging mechanism: Ethena builds the spot side with crypto assets such as ETH and related staking assets, while establishing corresponding short contract positions on exchanges, attempting to hedge the impact of price fluctuations in 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. Yield mainly comes from two parts: the native yield of staking assets and the funding rate income received from short contracts. Together, these two form the source of yield for users holding the staked version, sUSDe.
"no cash" describes USDe's original design, not its complete reserve structure thereafter. Ethena's August 2025 governance report showed that about 54% of USDe's collateral was stablecoin-backed assets, and about 46% was positions related to the delta-neutral strategy.
How it surged to third place
From 2024 to 2025, the crypto market strengthened overall, and perpetual contract funding rates remained positive during many periods, allowing the short side to earn funding fee income, which in turn boosted USDe's yield.
Leverage loops in DeFi further pushed up scale. The industry calls the strategies built around Ethena assets on Aave and Pendle "Aavethena": users deposit related assets as collateral on Aave, borrow funds, and continue allocating into USDe-related assets; others combine yield strategies with lending leverage through trading Pendle's principal tokens and yield tokens.
According to statistics from industry research institution Stablecoin Insider, from May to August 2025, Pendle's protocol-wide locked scale rose from about $3 billion to $10 billion. By September, USDe and its derivatives accounted for about 75% of Pendle's total locked scale.
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 it hit $0.65
The shock of this liquidation quickly spread across the entire crypto market. Research institution 10x Research estimated that within weeks after the October 10, 2025 crash, the total market capitalization of the crypto market fell by about $1.3 trillion cumulatively. This extreme market also pushed USDe into the spotlight.
The price of USDe on Binance once fell to $0.65, with a low of about $0.92 on Bybit, while on-chain pool prices on major trading platforms basically remained near $0.99.
According to a review on Ethena's governance forum, Binance's internal oracle at the time used only its own order book price as the basis for pricing USDe, amplifying price deviation during violent market conditions. At the same time, deposits and withdrawals at some trading firms were blocked, further limiting cross-platform arbitrage.
From October 10 to 11, about $1.9 billion of USDe redemptions were processed. Analysts at crypto media outlet Blockworks commented that this large redemption was processed quickly, and the mechanism showed strong resilience.
But this only shows that, in that event, the redemption channel and reserve system withstood the pressure. Whether users can redeem through the protocol, whether they can sell at a price close to $1 on exchanges, whether the value of reserve assets is sufficient to cover liabilities, and whether reserve assets can be realized in time during concentrated redemptions are four different things.
Redemptions did not stop, but the money left
Redemptions not stopping does not mean confidence was not damaged.
On October 9, 2025, USDe's circulating supply was about $14.7 billion, and by the end of the month it had fallen to about $9.2 billion; by the end of December, cumulative net outflows were about $8.3 billion, and circulating scale had fallen to about $6.3 billion. The governance token ENA fell by about 62% over the same period, dropping below $0.2.
The reason for capital outflow was not only panic. After the liquidation, perpetual contract funding rates fell sharply, and the short side could no longer steadily earn funding fee income; leveraged looping positions in protocols such as 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 such as Sky's sUSDS and institutional lending platform Maple Finance's syrupUSDC were attracting inflows.
Hedging positions down to only 1%
In 2026, Ethena gradually adjusted USDe's reserve composition. According to Ethena governance reports, the share of crypto asset basis trade positions in reserves was 11.4% at the end of March 2026, 13.3% at the end of April, and fell to about 1% by the end of June. The basis trade definition here is not fully comparable with the perpetual contract-related positions in the August 2025 report.
At the end of April 2026, about 57.2% of reserves were liquid stablecoins, 29.3% were DeFi lending positions, and institutional lending accounted for about 0.3%; by the end of June, the share of institutional lending had risen to about 6.9%, and assets such as tokenized collateralized loan obligations (CLOs) also appeared in reserves.
Ethena also proposed four diversification directions: expanding tokenized assets beyond short-term U.S. Treasuries, extending the delta-neutral framework to equity and commodity perpetual contracts, expanding institutional lending, and exploring prime brokerage-style lending for trading firms.
Institutional lending is one important new path among them. Ethena began allocating part of the stablecoins in reserves to institutional credit, participating in overcollateralized loans through partner institutions. Related arrangements involve different functions such as loan origination, collateral management, and third-party custody, and specific risks depend on the loan structure and the responsibilities assumed by 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 overcollateralized institutional credit.
As the share of basis trade positions declines, the center of risk for USDe is shifting from funding rates and counterparty risk to broader asset allocation risk, including DeFi protocol risk, the solvency of institutional borrowers, and the ability to realize loan collateral during extreme market conditions.The proportion of sUSDe in USDe's circulating supply is also declining. Ethena's September 2025 governance report showed that sUSDe was approximately $6.15 billion, while total USDe supply was approximately $14.5 billion, a share of about 43%; according to industry analysis compiled from DefiLlama data, by August 2026 that proportion was about 27%.
The money changed hands
In 2026, USDe's size did not return to its level before the major liquidation. In mid-March it was approximately $5.92 billion; on August 22, according to DefiLlama data, circulating supply was approximately $4.1 billion, ranking fifth among stablecoins and accounting for about 1.33% of the entire market. At its peak, it had been the third-largest stablecoin, with a share of about 5%; on September 19, market websites showed its size had rebounded to approximately $4.8 billion.
Yields are no longer at the levels of those years either. According to DefiLlama data, USDe's annualized yield briefly exceeded 50% in early March 2024, and by late December 2025 was about 4.3%. Both figures are point-in-time annualized data and do not represent the actual returns for the corresponding months.
The sources of funds are also changing. One of the main forces that previously drove USDe's growth was the recursive leverage strategies built around it on Aave and Pendle; now, Ethena is expanding channels such as institutional investment management and payments.
USDe has been connected to BlackRock's Aladdin investment management platform, and has also been included in the collateral system for U.S. retail brokerage Robinhood's crypto asset yield products. These are platform connections and product integrations, and do not mean that BlackRock directly holds or endorses USDe.
In September, Ethena began expanding into payment scenarios. On September 1, Ethena launched Ethena Pay, a self-custodial financial application running on Avalanche, which is still in testing. The product supports yield on USD balances and cashback on card spending, with balance yield of up to 6%, but this includes adjustable promotional rewards and is not guaranteed interest; regular spending cashback is up to 5%, paid in AVAX.
On September 11, USDe and sUSDe launched on the Tron network, further expanding the multi-chain coverage of Ethena's products.
The major liquidation a year earlier tested USDe's hedging mechanism. The redemption channel withstood the pressure, but funds continued to flow out over the following months.
A year later, Ethena has reduced its basis trade positions to a small fraction of reserves, allocating more funds to stablecoins, DeFi lending, institutional loans, and tokenized credit assets. The benefit is no longer being fully dependent on perpetual contract funding rates; the cost is that risk has expanded from trading markets to borrower solvency, loan collateral, and the liquidity of credit assets.
If another $1.9 billion-scale redemption wave occurs, can loans arranged through institutions such as Anchorage and Maple be converted back into cash as quickly as closing a short contract?
*The content of this article is for reference only and does not constitute any investment advice. Markets carry risk, and investment requires caution.