Treating Ethena USDe as a stablecoin is a ‘systematic risk’ for crypto – OKX founder

Key Takeaways

Why is USDe nonetheless a threat regardless of Binance’s remoted disconnect?

The remoted disconnect brought on a wider contagion and may nonetheless happen with out correct threat administration.

Will the sector study from Friday’s flash crash?

It was a obligatory stress check, sparking dialogue amongst crypto leaders about the way in which ahead.

OKX founder Star Xu has known as for a reassessment of a number of the dangers that brought on the October 10 crypto crash.

In a single statementXu talked about Ethena’s USDe, including that its de-pegging threat may trigger a market-wide contagion like Friday’s bloodbath. Consequently, it needs to be handled as a ‘tokenized hedge fund’ and never a stablecoin.

“It is very important remind the market that USDe shouldn’t be considered as a 1:1 pegged stablecoin – it’s a tokenized hedge fund.”

Though he’s an early investor in Ethena, Xu believes USDe just isn’t designed to maintain a tough peg to the USD. That is why strong threat controls are wanted, in any other case every thing may go bankrupt in minutes.

“Treating USDe as a easy 1:1 steady asset may introduce systemic dangers to your complete crypto trade sooner or later.”

Supply:

A painful lesson for leveraged merchants

Xu’s assertion was in response to a report from Ethena founder Man Younger. In accordance with Younger, final Friday’s USDe value dislocation was “no actual disconnect,” however an remoted case in Binance.

USDe is designed to trace the US greenback. Nevertheless, it bought disconnected and fell 35% on the Binance change, and it took some time earlier than it re-established the hyperlink.

The aftermath? Collateral rapidly dropped under threat ranges, resulting in an escalating massacre for leveraged merchants. It was a painful lesson about skinny order books and microstructure. A whopping $19 billion price of positions have been worn out in minutes – the biggest in historical past, dwarfing the FTX collapse and Covid occasions.

Altcoins fell over 90% and entry to Binance fluctuated, leaving market makers (MM) unable to return to the rescue (bringing liquidity to resolve the depeg).

Haseeb Qureshi, accomplice at VC Dragonfly, described the scenario higher. He in contrast it to a hearth outbreak, with MMs as firefighters.

“It is like a hearth broke out on Binance, however all of the roads have been blocked and the hearth brigade could not get in. This brought on a wildfire on Binance, however just about all over the place else.”

Areas within the chain like Hyperliquid responded with ruthless effectivity by means of computerized deleveraging (ADL). Positions have been forcibly closed at punitive charges to make sure the platform is debt free.

On the time of writing, Binance did refunded greater than $280 million in casualties throughout the USDe disconnection. Particularly merchants with coin margins (who put USD and different currencies as collateral).

That mentioned, ENA recovered by over 10%, as did the remainder of the market, with key gamers bet on additional restoration. Nevertheless, total market sentiment was nonetheless purple on the time of writing – an indication of short-term warning.

Supply: Santiment