Is USD really safe enough?

Written by: The Smart Ape

Compiled by: AididiaoJP, Foresight News

More and more people are beginning to worry about whether USDe is really safe, especially after the recent decoupling.

Decoupling has triggered a lot of FUD emotions, making it difficult to remain objective. The aim of this article is to examine @ethena_labs clearly and factually. Once you have all the information, you can form your own opinion rather than follow those who may have biases or hidden interests.

USDe decoupling

On the evening of October 10th, USDe seriously depegged, and I panicked when I saw it drop to $0.65.

But the decoupling only happened on @binance. In liquidity venues with better depth like Curve and Bybit, USDe hardly fluctuated for long, bottoming out around $0.93, and quickly recovered.

Why Binance?

Because Binance allows users to use USDe as collateral and uses its own internal order book (rather than external oracles) to assess the value of that collateral.

Some traders exploited this flaw by selling USDe worth between 60 million and 90 million dollars, driving the local price down to 0.65 dollars and triggering forced liquidations of 500 million to 1 billion dollars, as these assets were used as collateral.

In short, the issue is not related to Ethena's fundamentals, but rather to Binance's design. If a price feedback based on oracles had been adopted, this situation could have been avoided.

Will USDe crash like UST?

Many people compare Luna or UST with Ethena, but fundamentally, they are two completely different systems.

First of all, Luna does not have real income, but Ethena does. It earns revenue through liquidity staking and perpetual funding rates.

Luna's UST is supported by its own token $LUNA , which means it actually has no backing. When LUNA collapses, UST collapses as well.

Ethena is supported by Delta neutral positions, rather than by ENA or any tokens related to Ethena.

Unlike the fixed annual interest rate of 20% offered by Anchor, Ethena does not guarantee any yield, as it fluctuates with market conditions.

In the end, Luna's growth is unlimited, with no mechanism to slow down expansion. Ethena's growth is constrained by the total open contract volume on exchanges. The larger it becomes, the lower the yield, which keeps its scale balanced.

So, Ethena and Luna are completely different. Ethena may fail, just like any protocol, but it will not fail for the same reasons that Luna failed.

What are the risks of Ethena?

Each stablecoin carries risks, and even USDT and USDC have their own weaknesses. It is important to understand what these risks are and how serious you think they might be.

Ethena relies on delta neutral strategies:

Long positions (BTC, ETH) established through liquidity staking or lending protocols,

as well as short positions established through perpetual contracts on centralized exchanges.

For me, the biggest risk is if the major exchanges (Binance, Bybit, OKX, Bitget) crash or freeze withdrawals, Ethena will lose its hedge, resulting in an instant decoupling.

There is also a funding rate risk. If the funding rate remains negative for an extended period, Ethena will consume capital rather than generate profits. Historically, the funding rate has been positive over 90% of the time, which can offset brief periods of negative values.

USDe will also conduct re-basing, and new tokens will be minted when the protocol generates profits. If the market turns and the value of the collateral decreases, this may lead to slight dilution. Therefore, over time, this may result in slight under-collateralization.

Ethena also operates in a high-leverage ecosystem. A large-scale deleveraging event (such as the series of liquidations on October 10) could disrupt hedging or forced liquidations.

Finally, all of Ethena's perpetual short positions are priced in USDT, not USDe. If USDT decouples, USDe will also decouple. Ideally, perpetual contracts should be priced in USDe, but convincing Binance to change the BTC/USDT trading pair to BTC/USDe seems impossible to me.

These are the main risks currently debated around Ethena.

Risk Assessment

The list above may sound intimidating, but the probability of these events happening simultaneously is very low. You would need a long-term negative funding rate environment, a simultaneous exchange collapse, and a complete freeze of liquidity, which is statistically unlikely.

You can think of it as rolling a dice: the probability of rolling a “1” is one in six, but the probability of rolling a “1” followed by a “2” is one in thirty-six. This is how combinatorial probability works here.

Ethena was established after the Terra and FTX events, learning from the lessons. It has a reserve fund, off-chain custody, a floating yield, and is integrating oracle-based pricing.

In fact, the most likely outcome is not a collapse, but rather occasional peg fluctuations during times of market pressure, similar to what we see on Binance, without triggering broader contagion. Even in the event of a severe incident, it would impact the entire perpetual and synthetic stablecoin market, not just USDe.

Please remember that Ethena has survived the largest liquidation event in cryptocurrency history without losing its peg, having passed a real stress test.

Its collateral is on-chain and transparent, unlike many “mysterious basket” stablecoins supported by obscure off-chain reserves of altcoins.

Frankly speaking, many of the stablecoins currently in circulation are much riskier than Ethena, and we hold Ethena to a higher standard simply because of its scale and visibility.

My personal opinion

Personally, I believe that USDe will not face significant decoupling risks, which would require multiple disasters to occur simultaneously. Moreover, if it does happen, it will not decline in isolation.

There are still stablecoins in the market that carry much higher risks and still hold a significant market value.

If USDe survives unscathed during the record liquidation day in October, it fully demonstrates its resilience.

So, I don't think Ethena is particularly dangerous, certainly not more dangerous than other stablecoins.

They are also one of the few projects innovating in the stablecoin space, and based on the current results, this innovation is effective.

As always, don't put all your eggs in one basket. Diversify your stablecoin exposure, stay informed, and relax.