TL;DR:
- Ethena’s USDe supply fell 40% due to cautious traders and low yields.
- Market instability and reduced funding rates have diminished staking returns.
- Macro factors like Fed rate cuts and government resolution could restore confidence and demand.
The supply of Ethena’s USDe token has plummeted by 40% in just over a month, dropping from nearly $15 billion at the start of October to around $8.5 billion. This sharp decline reflects traders’ growing caution amid ongoing crypto market volatility and reduced appetite for high-risk DeFi strategies.
Market Pressure on USDe
Crypto instability has eroded confidence in USDe, as both stakers and traders face compressed yields due to low or negative funding rates. Unlike USDT or USDC, USDe is not fully backed one-to-one by dollars; instead, it hedges deposits using bearish perpetual futures bets. This structure ties its appeal directly to the profitability of staking, which fluctuates with market sentiment.
Yield-driven demand is highly sensitive, explained Amir Hajian, a researcher at Keyrock. When funding rates drop, stakers earn less, which can trigger redemptions and slower growth. The reflexive nature of USDe’s system amplifies market reactions, making stability challenging during periods of uncertainty.
October’s market turmoil compounded the stress, following a $19 billion leveraged wipeout on October 10. Exchange disruptions, notably on Binance, triggered heavy redemptions, impacting both USDe and DeFi users relying on looping strategies. Many staked positions unwound as APY fell and liquidation risks rose, shrinking demand further.
Recovery depends on macroeconomic factors, with investor confidence tied to potential Federal Reserve interest rate cuts and resolution of the U.S. government shutdown. A return of positive funding conditions could restore staker yields, improving USDe’s attractiveness and positioning Ethena to regain market trust.
Despite recent losses, USDe remains the third-largest dollar-pegged crypto behind USDT and USDC. Analysts suggest that if the broader crypto market stabilizes and risk appetite returns, USDe could once again offer competitive yields, attracting both DeFi participants and yield-seeking investors.
