After the Oct. 10 market crash that noticed large losses in bitcoin and different cryptocurrencies, almost $1 billion in DeFi positions involving Ethena’s staked USDe (sUSDe) are actually in danger, based on a brand new report from Sentora Analysis.
Because the 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 entails merchants depositing sUSDe as collateral on DeFi platforms like Aave and Pendle to borrow stablecoins corresponding 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 optimistic carry—the distinction between the sUSDe staking rewards and the borrowing prices.
Destructive Carry
Nevertheless, for the reason that Oct. 10 crash, the yield differential has flipped detrimental, denting the enchantment of the loop commerce.
“Following the flash crash on October 10, funding charges on DeFi markets have dropped considerably, chopping 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 detrimental for customers borrowing stables to lever sUSDe,” Sentora Analysis mentioned in an e 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 detrimental stick with it Aave v3 Core.
This detrimental 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 mentioned that merchants have to be careful for the unfold between Aave’s borrow annual share yield (APY) and the sUSDe yield, significantly 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 hold a detailed eye on the spike in utilization charges in USDT and USDC lending swimming pools, which might elevate borrowing prices and enhance stress amid the detrimental unfold between Aave’s borrow annual share yield and the sUSDe yield.
