After hitting a record high of $14.85 billion last month, the market cap of Ethena’s USDe stablecoin has now plummeted by 44%. What led to 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, this same asset appears to be in crisis, as its market cap has fallen by more than 44% in one month since its all-time high (ATH) of $14.85 billion on October 7:
USDe market cap evolution
Now with a market cap of $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 over $19 billion in liquidations on crypto perpetuals set a historic record. During the turmoil, the price of USDe fluctuated, particularly on Binance, which led to unexpected liquidations and prompted the cryptocurrency exchange to compensate its users.
Once volatility subsided, USDe regained its peg to the dollar, but initial doubts began to set in. In just 24 hours, the third-largest stablecoin on the market lost over 13% of its market capitalization, while some recalled the dark days of UST and drew parallels.
Speaking of drawing parallels, a more recent event may have exacerbated the crisis of confidence in algorithmic stablecoins: the collapse of XUSD. It was more of a yield product intended to be stable than a true stablecoin, but its collapse triggered the collapse of other assets, once again bringing to mind the mistakes of the past.
In reality, USDe has nothing to do with XUSD; but while this episode did not particularly exacerbate the decline in USDe’s market capitalization, it certainly did not help to ease mistrust toward algorithmic stablecoins either.
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 what has been observed since the beginning of the year. By way of comparison, USDT’s market capitalization has risen by only 3.14% since the events of October 10, while USDC’s has barely gained 0.6%.
In recent weeks, the teams at Ethena Labs have emphasized transparency in their communications. Going forward, the USDe dashboard provides more information on the various factors playing a key role in its structure, particularly regarding oracles and collateral.
Will this help regain user confidence, or at least stem the bleeding? Stay tuned.
To a lesser extent, the decline in USDe yields is also worth noting. According to DefiLlama data, compound yields did indeed drop from 5.65% to 0.13% between October 10 and 23, before rebounding to 5.09% today. As a result, the risk premium may no longer have been attractive to investors.
However, this should be viewed more as a temporary hiccup, given that in mid-July—before USDE’s market cap surged 77% over three weeks—USDE yields were already similar to today’s levels.
Meanwhile, ENA is trading at $0.32 at the time of writing, up 2.6% over the past 24 hours.
