After the Oct. 10 market crash that noticed huge losses in bitcoin and different cryptocurrencies, almost $1 billion in DeFi positions involving Ethena’s staked USDe (sUSDe) at the moment are in danger, based on a brand new report from Sentora Analysis.
For the reason that crash, Sentora notes that charges in DeFi markets have dropped considerably, shrinking yields on leveraged methods such because the sUSDe loop commerce. sUSDE is Ethena’s Staked USDe, an artificial greenback stablecoin that generates yield by staking the underlying USDe token.
The Loop
The favored technique includes merchants depositing sUSDe as collateral on DeFi platforms like Aave and Pendle to borrow stablecoins akin to Tether and USD Coin (USDC). They then use the borrowed USDT to purchase extra sUSDe, which is redeposited as collateral to borrow extra USDT and buy much more sUSDe.
This cycle is repeated to amplify the yield generated by the constructive carry—the distinction between the sUSDe staking rewards and the borrowing prices.
Unfavourable Carry
Nevertheless, for the reason that Oct. 10 crash, the yield differential has flipped adverse, denting the attraction of the loop commerce.
“Following the flash crash on October 10, funding charges on DeFi markets have dropped considerably, reducing yields for foundation‑commerce methods. On Aave v3 Core, USDT/USDC borrow charges sit ~2.0% / ~1.5% above the sUSDe yield, turning the carry adverse for customers borrowing stables to lever sUSDe,” Sentora Analysis stated in an electronic mail to CoinDesk.
The agency defined that, because the unfold stays under zero, looped positions that borrow stablecoins to purchase sUSDe begin to incur losses. If this persists, it might set off the unwinding of roughly $1 billion in positions already uncovered to adverse keep on Aave v3 Core.
This adverse carry might drive collateral gross sales or deleveraging, weakening liquidity within the very venues offering leverage and doubtlessly inflicting a cascading market impact.
What Subsequent?
Sentora stated that merchants have to be careful for the unfold between Aave’s borrow annual proportion yield (APY) and the sUSDe yield, notably when it stays under zero.
Utilization charges in USDT and USDC lending swimming pools, the place spikes in borrowing prices can speed up stress. Sentora wrote that there are a rising variety of looped positions nearing liquidation, particularly these inside 5% of compelled closure.
Shifting ahead, merchants have to maintain a detailed eye on the spike in utilization charges in USDT and USDC lending swimming pools, which might raise borrowing prices and improve stress amid the adverse unfold between Aave’s borrow annual proportion yield and the sUSDe yield.
