After the Oct. 10 market crash that saw big losses in bitcoin BTC$112.749,62 and various cryptocurrencies, virtually $1 billion in DeFi positions curious Ethena’s staked USDe (sUSDe) are now at risk, fixed with a fresh document from Sentora Learn.
Because the crash, Sentora notes that rates in DeFi markets be pleased dropped considerably, afraid yields on leveraged strategies such because the sUSDe loop alternate. sUSDE is Ethena’s Staked USDe, an synthetic buck stablecoin that generates yield by staking the underlying USDe token.
The Loop
The usual strategy involves merchants depositing sUSDe as collateral on DeFi platforms like Aave and Pendle to borrow stablecoins a lot like Tether USDT$1,0002 and USD Coin (USDC). They then employ the borrowed USDT to aquire extra sUSDe, which is redeposited as collateral to borrow additional USDT and aquire worthy extra sUSDe.
This cycle is repeated to develop the yield generated by the recede elevate—the adaptation between the sUSDe staking rewards and the borrowing prices.
Negative Elevate
Nonetheless, since the Oct. 10 crash, the yield differential has flipped unfavourable, denting the attraction of the loop alternate.
“Following the flash crash on October 10, funding rates on DeFi markets be pleased dropped considerably, chopping yields for foundation‑alternate strategies. On Aave v3 Core, USDT/USDC borrow rates sit ~2.0% / ~1.5% above the sUSDe yield, turning the elevate unfavourable for users borrowing stables to lever sUSDe,” Sentora Learn said in an email to CoinDesk.
The company defined that, because the unfold remains beneath zero, looped positions that borrow stablecoins to aquire sUSDe open to incur losses. If this persists, it could maybe probably presumably well situation off the unwinding of roughly $1 billion in positions already uncovered to unfavourable persist with it Aave v3 Core.
This unfavourable elevate could presumably well pressure collateral sales or deleveraging, weakening liquidity in the very venues offering leverage and potentially inflicting a cascading market build.
What Subsequent?
Sentora said that merchants want to stare out for the unfold between Aave’s borrow annual share yield (APY) and the sUSDe yield, particularly when it stays beneath zero.
Utilization rates in USDT and USDC lending pools, where spikes in borrowing prices can bustle up stress. Sentora wrote that there are a rising choice of looped positions nearing liquidation, especially those within 5% of forced closure.
Transferring forward, merchants want to withhold a shut gawk on the spike in utilization rates in USDT and USDC lending pools, which could presumably well elevate borrowing prices and originate better stress amid the unfavourable unfold between Aave’s borrow annual share yield and the sUSDe yield.
