During the crypto market crash, the world's third-largest stablecoin, USDe, briefly lost its peg to the US dollar.

```

During a market crash, the yield-generating stablecoin USDe from the cryptocurrency project Ethena temporarily lost its peg to the US dollar, highlighting the fragility of new stablecoin mechanisms under extreme market conditions.

On Friday, USDe briefly dropped to $0.65 on Binance before quickly recovering to near the dollar price level. This so-called "synthetic dollar" token currently offers holders a 5.5% yield and has a market capitalization of $14 billion, making it the world's third largest stablecoin.

The market plunge was triggered by Trump's tariff threats, causing investors to flock to safe-haven assets like gold and US Treasury bonds. According to Coinglass, more than $19 billion in bullish cryptocurrency positions were liquidated in the past 24 hours, affecting more than 1.6 million traders with forced liquidations.

Binance stated it is conducting a comprehensive review over affected users, liquidation details, and appropriate compensation measures. Ethena Labs responded on social media saying the token remains over-collateralized.

Depegging Event Shakes Market Confidence

Although USDe's price fluctuation was brief, it was enough to cause investor concern. BTC Markets analyst Rachael Lucas said:

Even a brief stablecoin depeg can shake the market. Traders rely on them for liquidity, lending, and collateral, so any loss of confidence can trigger liquidations and ripple through to wider crypto volatility.

In a blog post, Binance mentioned that besides USDe, two other tokens also lost their pegs. The exchange said it is thoroughly reviewing affected users and drafting corresponding compensation measures.

Ethena Labs’ governance token ENA was also hit, dropping as much as 43% in the past 24 hours, according to CoinGecko.

Unique Yield Mechanism Faces Stress Test

USDe generates yield using a basis trading strategy, leveraging the price differences between spot and futures markets to earn returns. The token is backed by digital asset reserves including stablecoins such as USDT and USDC.

When the cryptocurrency market is booming and funding rates are high, the mechanisms Ethena relies on can produce very high yields. The funding rate is the interest paid by bullish traders for leveraged futures positions. However, during large sell-offs, this mechanism faces a severe test.

In the current market downturn, Ethereum's hourly funding rate has dropped to its lowest level since at least the closing of yen carry trades in August 2024. This decline threatens USDe's yield.

USDe's yield-generating structure is a key differentiator from competitors USDT and USDC, the world's largest stablecoins, which are mainly backed by highly liquid assets such as US Treasury bonds.

Despite structural differences, cryptocurrency data tracking organizations CoinGecko and CoinMarketCap still classify USDe as a stablecoin. This classification reflects the market’s acceptance of new stablecoin mechanisms, but also highlights the challenges of maintaining stability under extreme market conditions.

Risk DisclaimerThe market has risks, and investments should be made cautiously. This article does not constitute personal investment advice, nor does it take into account the investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable to their specific circumstances. Invest accordingly and at your own risk. ```