Black Swan Events in the Crypto Market
Between late night on October 10, 2025, and the early morning of October 11 (UTC), the crypto market experienced one of its most turbulent periods on record. Prices tumbled across all major assets, from Bitcoin to Ethereum, triggering a cascade of liquidations. Ethena USDe, which was meant to be pegged to the US dollar, even plunged to $0.65 against USDT on Binance. Although it rebounded quickly, the panic left a lasting mark—this extreme liquidation event significantly eroded trust in the stablecoin peg mechanism.
Tariff News Sparks Global Increased Risk Aversion
The catalyst was U.S. President Trump’s announcement of a 100% tariff on Chinese goods. This news, released during Asian trading hours, ignited increased risk aversion worldwide, causing BTC and ETH to nosedive together as leveraged positions were rapidly wiped out.
USDe was the first to show signs of depegging, with its price against USDT crashing to $0.65 and briefly to $0.63 against USDC. The liquidation wave in the following early morning hours was unprecedented: within just 24 hours, over $19.2 billion in leveraged positions were forcibly closed, with long positions losing as much as $16.7 billion. Some institutions, using USDe as cross-margin collateral, were forced to sell USDe spot holdings during these liquidations, further depressing its price.
Dual Pressure from Liquidity and Leverage
USDe’s operations rely on delta-neutral strategies and funding rate arbitrage. When the market is stable, positive funding rates generate steady returns for the protocol. But in times of panic, funding rates turn negative, forcing the protocol to absorb additional costs and eroding its margin of safety.
During this sell-off, market liquidity dried up rapidly, leaving investors unable to absorb selling pressure at the $1 price point, which quickly amplified depegging. Meanwhile, with USDe widely used as leveraged collateral, price swings forced holders to add margin, further increasing selling pressure and fueling the liquidation cycle.
Cycle Effects
Leveraged liquidations broke USDe’s spot peg and spilled over into the derivatives market. When perpetual contract prices fall below spot, Ethena’s short positions theoretically show unrealized gains, making the protocol appear overcollateralized according to reported metrics. Market participants prioritize real-time liquidity—when arbitrageurs can’t redeem or balance spreads swiftly, confidence drains quickly and market-wide panic ensues.
Ethena’s Official Response
Ethena protocol issued an official statement at 6:00 AM on October 11 (UTC):
Extreme market volatility and large-scale liquidations caused USDe’s secondary market price to temporarily depeg. However, minting and redemption mechanisms operated normally and the Ethena protocol remained overcollateralized.
The statement added that perpetual contracts were still trading below spot, so unrealized profit and loss (uPNL) on protocol short positions was being realized, which theoretically increased the overall collateral ratio. Nevertheless, market reaction showed that, even with robust mechanisms, trust had been severely damaged.
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Conclusion
This USDe depegging event revealed the systemic risks posed by high leverage, cross-platform exposure, and concentrated liquidity. In extreme market conditions, even the most advanced synthetic stablecoins can be overwhelmed by cascading liquidation pressure. Achieving true stablecoin stability in the future will require not only sound mechanism design, but also diversified liquidity. Comprehensive risk control upgrades are also essential. For investors, this upheaval is more than a lesson in price—it’s a profound reflection on the resilience of decentralized finance.
