As $1 billion in redemptions flowed through the market, Ethena Labs maintains that its synthetic dollar, USDe, functioned as intended, blaming the meltdown on Binance’s own pricing systems.
This weekend’s market drama impacted all sectors of crypto, with stablecoins also affected by a reported glitch at the largest exchange globally.
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Ethena Defends Against $1 Billion Binance Meltdown
In a comprehensive post on X (Twitter), Ethena founder Guy Young rebutted claims of USDe depegging, asserting that the protocol’s minting, redemption, and collateral mechanisms functioned normally throughout the market turmoil.
“Ethena’s mint and redeem function experienced zero downtime… [the protocol processed] more than $1 billion in withdrawals within several hours and $2 billion in one day without any issues,” Young stated.
Young pointed out that the chaos originated from a single platform, Binance, whose internal oracle index diverged from the most liquid on-chain pools.
The exchange’s order book started referencing its own spot prices instead of broader market data, resulting in a brief collapse of USDe’s quoted value. Market makers, hindered by exchange lag and deposit freezes, were unable to arbitrage as automated liquidations coursed through Binance’s unified collateral system.
Analyst Pavel Altukhov characterized the situation as a perfect storm, alleging that Binance’s unified account structure allows all assets to act as collateral. With the value of USDe and other assets like wBETH declining, traders were pushed into forced sales to maintain margin, exacerbating sell pressure throughout the platform.
“Traders were compelled to cover negative PnL and satisfy new margin requirements, while their USDe performed only partially due to the depeg,” Altukhov wrote.
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Meanwhile, other analysts debated whether the incident was a result of coordinated manipulation or a technical glitch. Analyst ElonTrades suggested that someone intentionally exploited Binance’s internal price feeds, aware that the system used those prices to calculate collateral values.
For the average person, when USDe’s price briefly dropped on Binance, several DeFi money markets (like Curve, Fluid, and others) applied a “hardcoded” peg. This meant they regarded USDe as equivalent to USDT or USDC (1:1) for collateral and lending purposes.
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Thus, even though Binance’s internal price feed indicated USDe was below $1, DeFi protocols disregarded that temporary decline as they referenced a fixed peg or substantial on-chain liquidity pools, rather than Binance’s internal order book data.
Tether CEO Paolo Ardoino seized the moment to endorse USDT as the preferred collateral for derivatives and margin trading.
“USDT is the superior collateral for derivatives and margin trading. Liquid, tested under pressure. If you rely on low liquidity tokens, such as bananas, a horse, three olives, and chewed bubble gum as collateral, prepare yourself for turbulence when the market shifts,” he wrote.
Ethena Turns to Transparency and Oracle Reform After the Chaos
In response, Ethena has published comprehensive guidance on Oracle design and risk management. The USDe stablecoin issuer stresses the necessity of differentiating between “temporary dislocation” and “permanent impairment” of collateral.
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The team also provides real-time proof-of-reserves (PoR) access to exchanges and oracle providers. This encompasses Chaos Labs and Chainlink, facilitating on-demand validation of USDe’s backing.
Industry voices largely welcomed this transparency initiative. Researcher Wang Xiaolou stated that Ethena’s approach “makes sense.” He argues that pegging USDe to USDT in DeFi markets during instability helps prevent unnecessary liquidations. Simultaneously, PoR-based triggers can address actual impairments if they occur.
Still, some analysts remain cautious, including Duo Nine, who cautioned that while DeFi money markets emerged unscathed this time.
“USDe lost its peg on Binance after the crisis subsided. This was related to Binance, and DeFi avoided issues thanks to the hardcoded peg to USDT. Next time, the panic could begin in DeFi, and redemption speed may not suffice. USDe remains a high-risk asset,” the analyst wrote.
Claims suggest that Ethena’s system functioned correctly, and that the venue (Binance) failed. However, the incident highlights a deeper systemic issue. Centralized exchange data feeds can trigger systemic stress across an increasingly interconnected CeFi-DeFi landscape.
