On October 11, 2025, the cryptocurrency market experienced one of the largest liquidation events in its history. During the shock known as the “10/11 crash,” CoinGlass recorded more than $19 billion in liquidations over a rolling 24-hour period, setting a record at the time.
Among the assets caught in the turmoil was USDe, Ethena Labs’ synthetic dollar, which briefly traded as low as $0.65 against USDT on Binance. Before the crash, USDe had become the world’s third-largest stablecoin, supported by a delta-neutral hedging strategy that generated yield from crypto markets rather than relying exclusively on conventional cash reserves.
One year later, USDe’s position has changed substantially. Its circulating supply has contracted from approximately $14.7 billion to less than $5 billion, its market ranking has fallen from third to fifth, and its reserve composition has shifted toward a broader range of assets and lending strategies.
The October crash exposed the vulnerabilities of USDe’s original growth model. Its subsequent evolution raises a different question: Has Ethena reduced its dependence on crypto-market funding rates, or has it simply exchanged one set of risks for another?
- The Original Design: A Synthetic Dollar Built on Hedging
USDe is issued by Ethena Labs, a synthetic-dollar protocol launched in February 2024 and founded by CEO Guy Young. Its early backers included crypto venture capital firm Dragonfly, Binance Labs, Bybit, and OKX Ventures.
Unlike stablecoins backed primarily by cash and short-term U.S. Treasuries, USDe was initially built around a delta-neutral hedging strategy. It also differs from overcollateralized decentralized stablecoins such as DAI and USDS, issued within the Sky ecosystem, formerly known as MakerDAO.
Ethena’s model combined crypto assets held in its reserves, including ETH and liquid staking assets, with corresponding short positions in derivatives markets. The objective was to offset changes in the underlying assets’ market prices while maintaining the dollar value of the system.
The underlying strategy—holding an asset while shorting a corresponding futures position—is familiar to hedge funds and market makers. Ethena adapted it into a token that could circulate across decentralized finance (DeFi) applications.
The model generated returns from two principal sources: staking rewards on eligible assets and funding payments received from short perpetual-futures positions when funding rates were favorable. These returns supported sUSDe, the staked version of USDe, whose holders could earn yield generated by the protocol.
This structure offered a compelling proposition during bullish market conditions. When perpetual-futures funding rates remained positive, short positions could generate recurring income while the associated spot holdings provided the underlying asset exposure.
However, the strategy introduced risks that conventional reserve-backed stablecoins do not necessarily share to the same extent. Returns depended on market conditions, while the system also faced exchange and custody counterparty risks, derivatives-market disruptions, and the possibility that hedges might not perform as expected during periods of extreme volatility.
The description of USDe as a system operating without cash should also be understood in its historical context. Its reserve structure evolved over time. Ethena’s August 2025 governance report indicated that approximately 54% of USDe’s collateral consisted of stablecoin-backed assets, while roughly 46% was associated with its delta-neutral strategy.
By then, USDe was no longer accurately described as relying exclusively on crypto collateral and derivatives hedging.
- How USDe Climbed to Third Place
Between 2024 and 2025, favorable crypto-market conditions helped USDe scale rapidly.
Perpetual-futures funding rates remained positive for extended periods, allowing Ethena’s short positions to collect funding payments and support attractive yields for sUSDe holders. As demand for yield-bearing dollar assets increased, USDe became a useful building block across DeFi.
Leverage accelerated that growth.
On Aave, users could deposit eligible assets as collateral, borrow against them, and deploy the borrowed funds into additional yield-generating positions. On Pendle, users could trade principal and yield components separately, creating additional opportunities to structure leveraged yield strategies.
Industry participants sometimes referred to combinations of Ethena assets and Aave-based leverage as “Aavethena.” These strategies could increase capital efficiency and amplify returns when market conditions remained favorable. They could also amplify losses and liquidation pressure when prices, borrowing costs, or yields moved against users.
According to research cited from Stablecoin Insider, Pendle’s total value locked (TVL) increased from approximately $3 billion to $10 billion between May and August 2025. By September, USDe and related derivatives reportedly represented around 75% of Pendle’s total TVL.
This concentration illustrated how closely parts of the DeFi yield ecosystem had become tied to Ethena-related products.
Before the October crash, USDe’s circulating supply had reached approximately $14.7 billion, accounting for roughly 5% of the stablecoin market. Only USDT and USDC were larger.
The growth was significant, but it also meant that a change in funding conditions or a sudden unwinding of leveraged positions could affect not only USDe itself but also the wider network of protocols and strategies built around it.
- October 11: USDe Falls to $0.65
The October liquidation shock spread rapidly across cryptocurrency markets, forcing leveraged traders to close positions and intensifying volatility.
Research firm 10x Research estimated that the market’s total capitalization subsequently declined by a cumulative $1.3 trillion in the weeks following the October 10, 2025 crash.
USDe came under particular scrutiny after its market price briefly diverged from its intended $1 value. On Binance’s USDe/USDT trading pair, it fell as low as $0.65, while its price on Bybit reportedly dropped to approximately $0.92. Prices in major on-chain liquidity pools generally remained closer to $0.99.
The divergence highlighted an important distinction between a stablecoin’s market price and its underlying redemption mechanism. A token can trade below its target value on an exchange even when its issuer continues processing redemptions, particularly when liquidity is impaired or arbitrage becomes difficult.
According to a post-mortem published on Ethena’s governance forum, Binance’s internal oracle at the time relied exclusively on its own order-book price to value USDe. During extreme volatility, this approach reportedly amplified the observed deviation. Disruptions affecting deposits and withdrawals at some trading firms also constrained arbitrage between venues.
These factors help explain how USDe could experience a sharp exchange-price dislocation without that price necessarily representing the value obtainable through every other trading or redemption channel.
Approximately $1.9 billion in USDe redemptions were processed on October 10 and 11. An analyst at crypto media outlet Blockworks described the speed with which the redemptions were handled as evidence of considerable resilience.
That is an important part of the story, but it does not resolve every question about the system’s safety.
Four issues must be considered separately:
- Redemption capacity: Can the protocol process large requests to redeem USDe?
- Market liquidity: Can holders sell USDe on exchanges close to $1 during a market shock?
- Reserve sufficiency: Are the assets backing the system sufficient to cover its liabilities?
- Reserve liquidity: Can those assets be converted into cash or equivalent liquid assets quickly enough to meet concentrated withdrawals?
The October episode provided evidence that the redemption mechanism could withstand substantial pressure. It did not, by itself, establish that every reserve asset could be liquidated immediately under all market conditions.
- Redemptions Continued, but Confidence Weakened
USDe’s ability to process redemptions did not prevent capital from leaving the ecosystem.
Its circulating supply stood at approximately $14.7 billion on October 9, 2025, before declining to around $9.2 billion by the end of that month. By the end of December, cumulative net outflows had reached roughly $8.3 billion, while supply had fallen to approximately $6.3 billion.
Over the same period, Ethena’s governance token, ENA, declined by about 62%, falling below $0.20.
The contraction reflected more than the immediate shock of the liquidation event. It also exposed the economic assumptions underlying USDe’s growth.
After the crash, perpetual-futures funding rates weakened, reducing the income available from short positions. The yield that had helped attract capital during favorable market conditions became less compelling.
At the same time, leveraged strategies built around Ethena assets on protocols such as Aave faced liquidation and unwinding pressure. For some participants, redeeming USDe was part of the process of reducing exposure and repaying borrowed funds.
Capital also had alternatives. Other yield-bearing dollar products, including sUSDS from Sky and syrupUSDC from institutional lending platform Maple Finance, attracted inflows during the same period.
This marked a turning point for USDe. Its previous expansion had been supported by attractive yields, favorable derivatives-market conditions, and the ability to reuse Ethena-related assets across DeFi. Once those conditions weakened, the incentives sustaining that growth became less powerful.
The lesson is not necessarily that the original model failed. Rather, its growth depended on a combination of market conditions and capital flows that could reverse quickly.
- Ethena Reshapes Its Reserves
In 2026, Ethena began shifting USDe’s reserve composition more substantially, reducing the relative importance of crypto-asset basis trading and expanding into other asset classes and lending arrangements.
According to Ethena governance reports, basis-trading positions accounted for approximately 11.4% of reserves at the end of March 2026 and 13.3% at the end of April. By the end of June, that share had fallen to around 1%.
These figures should not be treated as directly interchangeable with the perpetual-related exposure reported in August 2025, as the categories and measurement bases differ.
The composition of the remaining reserves also changed. At the end of April 2026, approximately 57.2% consisted of liquid stablecoins, 29.3% of DeFi lending positions, and around 0.3% of institutional lending. By the end of June, institutional lending had increased to approximately 6.9%, while tokenized collateralized loan obligations (CLOs) and other assets had entered the reserve mix.
Ethena has outlined several avenues for further diversification:
- Expanding tokenized assets beyond short-term U.S. Treasuries.
- Extending its delta-neutral framework to equity and commodity perpetual-futures markets.
- Increasing institutional lending allocations.
- Exploring prime-broker-style lending services for trading firms.
The direction is clear: Ethena is seeking to diversify its sources of income rather than depend as heavily on favorable perpetual-futures funding rates.
But diversification does not eliminate risk. It changes where that risk resides.
Stablecoins held in reserve can generally be valued and transferred more readily than loans that mature over time or tokenized credit instruments that depend on market liquidity. DeFi lending positions introduce protocol and liquidation risks, while institutional loans introduce borrower credit risk, collateral-management risk, and potential delays in recovering funds.
The practical question is therefore not simply how much of USDe’s reserve is diversified, but how quickly each component can be converted into liquid assets during a redemption surge.
Institutional credit becomes part of the model
Institutional lending has emerged as one of Ethena’s important diversification channels. The protocol has begun allocating some reserve stablecoins to institutional credit through partner arrangements involving overcollateralized loans.
These arrangements can involve several distinct functions, including originating loans, managing collateral, administering repayments, and providing custody. Their risk characteristics depend on the specific structure, the quality of collateral, the contractual rights of the parties, and the ability to enforce those rights during periods of market stress.
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 approximately $1 billion in secured financing through a bankruptcy-remote special-purpose vehicle, with the funds intended for overcollateralized institutional credit.
Such arrangements could create additional sources of income and reduce reliance on derivatives funding rates. However, the existence of collateral does not automatically guarantee immediate recovery of principal. In a stressed market, collateral values can fall, liquidation can take time, and legal or operational processes can delay access to funds.
As basis-trading positions shrink as a share of reserves, USDe’s risk profile is consequently shifting away from an emphasis on derivatives funding rates and exchange counterparty exposure toward a broader mix of market, protocol, credit, and liquidity risks.
- Fewer Holders Are Staking USDe
Another change is visible in the proportion of USDe supply held in its yield-bearing staked form, sUSDe.
Ethena’s September 2025 governance report put sUSDe at approximately $6.15 billion against total USDe supply of around $14.5 billion, representing roughly 43% of supply.
By August 2026, industry analysis based on DefiLlama data placed the ratio at approximately 27%.
This decline suggests that a smaller proportion of USDe was being held in its staked form than during the earlier period. It is consistent with a shift in the product’s usage and yield appeal, although the ratio alone cannot establish why individual holders changed their positions.
The distinction matters because USDe and sUSDe serve different purposes. USDe functions as the underlying synthetic dollar, while sUSDe represents a staked position designed to receive the yield generated by Ethena’s system.
A falling staking ratio can therefore reflect changes in demand for yield, the relative attractiveness of competing products, or the need for users to unwind positions. It should not automatically be interpreted as proof that all remaining USDe holders have lost confidence in the protocol.
- Supply Remains Far Below Its Peak
By 2026, USDe had not recovered its pre-crash scale.
Its circulating supply stood at approximately $5.92 billion in mid-March. DefiLlama data placed it at around $4.1 billion on August 22, ranking it fifth among stablecoins and accounting for approximately 1.33% of the market. On September 19, another market-data source showed supply recovering to roughly $4.8 billion.
Although these figures indicate some variation during the year, the overall picture remains one of substantial contraction from the $14.7 billion peak.
Yield has also moderated considerably. DefiLlama data show USDe’s annualized yield briefly exceeding 50% in early March 2024, compared with approximately 4.3% in late December 2025.
These are annualized readings at particular points in time, not the actual returns earned over the respective months. They illustrate how dramatically the yield environment changed, rather than establishing what every holder earned.
The lower supply and reduced yield point to a different phase in USDe’s development. The product is no longer expanding primarily on the strength of a rapidly growing yield trade. Ethena is increasingly pursuing other ways to attract capital, deepen integrations, and expand the utility of its stablecoin ecosystem.
- From DeFi Yield to Institutional Finance and Payments
USDe’s earlier growth was closely linked to leveraged DeFi strategies on Aave and Pendle. Ethena is now expanding toward institutional investment infrastructure and consumer payments.
USDe has been integrated into BlackRock’s Aladdin investment-management platform and included in the collateral framework for crypto-yield products offered by U.S. retail brokerage Robinhood.
These arrangements may broaden the ways in which USDe can be accessed or used within financial products. However, platform integration and collateral eligibility should not be confused with direct ownership or endorsement by BlackRock.
Ethena has also begun exploring payments as a way to extend the utility of its dollar-denominated products beyond DeFi trading.
On September 1, 2026, it launched Ethena Pay, a self-custodial financial application on Avalanche that remains in testing. The product offers yield on dollar balances and cashback on card spending. Advertised balance yields can reach 6%, incorporating adjustable promotional rewards rather than guaranteed interest. Standard purchase cashback can reach 5% and is paid in AVAX.
On September 11, USDe and sUSDe also launched on Tron, extending the availability of Ethena-related assets across another blockchain ecosystem.
These initiatives point toward a broader strategy: positioning Ethena assets as infrastructure for payments, collateral, institutional financial products, and on-chain capital markets.
Whether these channels can generate durable demand remains an open question. Wider distribution may create new use cases, but it does not remove the need to manage reserves, maintain redemption capacity, and ensure that the underlying assets remain sufficiently liquid.
- The Next Stress Test: Can Credit Be Liquidated as Quickly as a Hedge?
The October 2025 liquidation event tested USDe’s original market-based model. The redemption mechanism continued to operate under substantial pressure, but confidence weakened, and the following months brought a sharp contraction in supply.
One year later, Ethena has substantially reduced the share of reserves associated with basis trading while expanding allocations to liquid stablecoins, DeFi lending, institutional credit, and tokenized credit assets.
This transition offers a potential benefit: less dependence on favorable perpetual-futures funding rates. But it also introduces a broader set of risks, including borrower defaults, collateral impairment, DeFi protocol failures, and delays in converting credit assets into liquid reserves.
That trade-off becomes particularly important during concentrated redemptions.
A short derivatives position can generally be closed through the relevant trading venue, subject to market liquidity, margin requirements, and counterparty performance. A loan, even when overcollateralized, may require collateral liquidation, legal enforcement, or time to mature. Tokenized credit assets may also face limited secondary-market liquidity precisely when investors most want to sell.
This does not mean that institutional lending is inherently less safe than derivatives hedging. The comparison depends on the structure of the loans, collateral quality, contractual protections, maturity profiles, and the liquidity available to meet immediate obligations.
It does mean that reserve diversification should be assessed not only by the number of asset classes involved, but also by their behavior under stress.
For USDe, the central question has evolved. It is no longer simply whether Ethena can maintain a delta-neutral position when funding rates turn unfavorable. It is whether the entire reserve structure can withstand a large, sudden wave of redemptions without forcing the sale of assets at distressed prices or delaying access to funds.
If another $1.9 billion redemption wave arrives, can Ethena convert its institutional loans and tokenized credit assets into liquid reserves quickly enough to meet demand?
The answer will depend less on the headline size of its reserves than on their quality, liquidity, and accessibility when markets are under pressure.