After hitting a record high of $14.85 billion last month, the market cap of Ethena’s USDe stablecoin has now plummeted 44%. What happened to cause this?
Ethena’s USDe market cap is in free fall
Over the summer, Ethena’s USDe saw remarkable adoption, propelling it to third place in the stablecoin rankings. Today, that same asset appears to be in crisis, with its market capitalization falling more than 44% in one month from its all-time high (ATH) of $14.85 billion on October 7:
Now capitalized at $8.28 billion, USDe has ceded third place on the podium to USDS.
Several factors may explain this crisis, the first being the evening of October 10, when more than $19 billion in liquidations on perpetual crypto contracts set a historic record. During the storm, the price of USDe fluctuated, particularly on Binance, which led to unexpected liquidations and prompted the cryptocurrency exchange to compensate its users.
Once the volatility subsided, the USDe regained its peg to the dollar, but the first doubts began to set in. In just 24 hours, the third-largest stablecoin on the market lost more than 13% of its capitalization, while some may have recalled the dark days of the UST and made the connection.
Speaking of conflation, a more recent event may have exacerbated the crisis of confidence in algorithmic stablecoins: the fall of XUSD. It was more of a yield product that was supposed to be stable than a true stablecoin, but its collapse led to the collapse of other assets, once again reminding us of the mistakes of the past.
In reality, USDe has nothing to do with XUSD, but while this episode did not particularly exacerbate the fall in USDe’s market capitalization, it certainly did nothing to calm mistrust of algorithmic stablecoins.
Added to all this is a general slowdown in stablecoins. And for good reason: while this asset class continues to grow, it is doing so at a slower pace than we have seen since the beginning of the year. By way of comparison, USDT’s capitalization has grown by only 3.14% since the events of October 10, while USDC’s has barely gained 0.6%.
In recent weeks, the Ethena Labs teams have emphasized transparency in their communications. The USDe dashboard now provides more information on the various factors that play a decisive role in its structure, particularly oracles and collateral. Will this help to regain user confidence, or at least stem the bleeding? Stay tuned.
To a lesser extent, the decline in USDe yields can also be mentioned. According to data from DefiLlama, compound yields did indeed fall from 5.65% to 0.13% between October 10 and 23, before returning to 5.09% today. As a result, the risk premium may no longer be attractive to investors. However, this should be seen as a temporary blip, given that in mid-July, before the USDe’s market capitalization climbed 77% in three weeks, yields on the USDe were already similar to today’s levels.
At the same time, ENA is trading at $0.32 at the time of writing, up 2.6% over the last 24 hours.
