Ethena’s USDe Supply Drops 40% Amid Crypto Market Woes

The supply of the dollar-pegged token USDe, issued by Ethena, decreased sharply from nearly $15 billion in early October to about $8.5 billion by late November, reflecting a more than 40% drop, according to DefiLlama data. This decline stems from ongoing caution in the crypto markets, which discourages both users of USDe in decentralized finance (DeFi) and traders who generate yields for the token.

Unlike typical stablecoins such as Tether‘s USDT or Circle‘s USDC, USDe is not backed one-to-one by U.S. dollars. Instead, it is supported by bearish perpetual futures positions on centralized exchanges. These futures are a type of financial contract allowing traders to speculate on the price movements of cryptocurrencies without expiration. The yield users earn by staking USDe comes mainly from the funding rates generated by these bearish futures.

When funding rates fall or turn negative, protocol revenue and staked USDe yields decrease, lowering the token’s attractiveness compared to holding cash. As explained by Colin Butler, head of global financing at crypto treasury firm Mega Matrix, which holds roughly $3 million in Ethena governance tokens, the decline in perpetual futures funding rates causes reduced returns for stakers.

This cycle is self-reinforcing, as Amir Hajian, researcher at crypto market maker Keyrock, noted: “The reflexive nature of the system, where yield drives demand, means that lower funding quickly translates to slower growth or even redemptions.”

The recent downturn also followed a significant $19 billion leverage wipeout on October 10, which prompted a notable sell-off and deleveraging. Binance acknowledged its platform experienced disruptions linked to this event and committed to reviewing and compensating losses caused by these failures. Although Binance’s issues were not Ethena’s fault, USDe suffered from the subsequent market stress, according to Butler.

USDe is widely used in looping trades—strategies where holders continuously borrow stablecoins against their staked USDe to increase yields. The fall in derivatives funding rates has reduced the profitability of these loops, and the crash revealed the riskiness of such strategies. Butler mentioned research identifying $1 billion worth of staked USDe loop trades as at risk after the market downturn, with many likely to unwind as annual percentage yields (APY) drop or liquidation risks rise.

The broader crypto market showed signs of stabilization after October’s declines, with Bitcoin falling below $100,000 for the first time since June. Contributing factors included concerns over the U.S. government shutdown and uncertainty about Federal Reserve interest rate policies. Recently, a bipartisan Senate coalition moved to advance a bill to end the 40-day shutdown. Additionally, the CME Group’s FedWatch tool currently estimates around a 65% chance of a Federal Reserve rate cut in December, which could improve risk appetite and funding rates linked to USDe, according to CME Group data.

“When the Fed begins cutting rates, positive funding environments reemerge since risk appetite returns,” Hajian said. “If that cycle plays out again, Ethena is well-positioned to offer among the most attractive yields in the market once conditions stabilise.”

Despite recent decreases, USDe remains the third-largest dollar-pegged crypto stablecoin after USDT and USDC. Ethena Labs, the developer behind the USDe token and protocol, did not provide comments on this situation.

✅ Follow BITNEWSBOT on Telegram, Facebook, LinkedIn, X.com, and Google News for instant updates.

Previous Articles:

• Citi Sees 17% Upside for Nvidia, Hikes Target Ahead of Earnings
• Argentine Judge Freezes Hayden Davis’s Crypto Assets in LIBRA Case
• BitMine Buys 110K ETH, Boosts Treasury to 3.5M Tokens
• Shiba Inu Market Cap Plummets Over 85% Since 2021 Peak
• Hive Hits Record 289 BTC in October, Stock Jumps 7% Pre-Market