In early July 2025, the crypto market was rocked by the sudden destabilization of one of the fastest-growing stablecoins — USDe by Ethena. In just a few days, the token lost over 10% of its value, dropping to $0.88. This triggered a wave of liquidations across DeFi protocols and a sharp decline in major crypto assets like Bitcoin and Ethereum.
Why USDe Collapsed
The main cause of the collapse was a weak collateral model. Unlike USDT and USDC, USDe lacked full fiat backing. Its reserves were partially based on derivatives and complex hedging strategies. When a few large wallets began withdrawing liquidity, panic spread quickly. The rush to exit USDe overwhelmed the system, breaking the $1 peg.
This led to an accelerated loss of trust and triggered cascading liquidations across multiple DeFi platforms.
Impact on DeFi and the Broader Market
DeFi was hit hard. The total value locked (TVL) across major protocols like Aave, Curve, and MakerDAO dropped by 17% in one week. Some platforms halted USDe-related activity to contain losses.
Bitcoin fell below $58,000, and Ethereum dropped under $3,000, driven not only by lower liquidity but also by renewed skepticism from institutional investors. The volatility in what was perceived as a “safe” asset reignited debates around the future of algorithmic stablecoins.
What Happens Next?
The fallout from USDe is a major stress test for the entire DeFi ecosystem. If the team behind Ethena fails to restore trust, other algorithmic stablecoins could come under pressure. There are already growing calls for greater transparency, independent audits, and stricter collateralization rules.
On the flip side, many see this as a healthy correction — a purge of undercollateralized, risky experiments. The long-term winners could be robust, transparent protocols, and Bitcoin, with its capped supply and increasing institutional demand, may once again be seen as a flight-to-safety asset.
Why USDe Collapsed
The main cause of the collapse was a weak collateral model. Unlike USDT and USDC, USDe lacked full fiat backing. Its reserves were partially based on derivatives and complex hedging strategies. When a few large wallets began withdrawing liquidity, panic spread quickly. The rush to exit USDe overwhelmed the system, breaking the $1 peg.
This led to an accelerated loss of trust and triggered cascading liquidations across multiple DeFi platforms.
Impact on DeFi and the Broader Market
DeFi was hit hard. The total value locked (TVL) across major protocols like Aave, Curve, and MakerDAO dropped by 17% in one week. Some platforms halted USDe-related activity to contain losses.
Bitcoin fell below $58,000, and Ethereum dropped under $3,000, driven not only by lower liquidity but also by renewed skepticism from institutional investors. The volatility in what was perceived as a “safe” asset reignited debates around the future of algorithmic stablecoins.
What Happens Next?
The fallout from USDe is a major stress test for the entire DeFi ecosystem. If the team behind Ethena fails to restore trust, other algorithmic stablecoins could come under pressure. There are already growing calls for greater transparency, independent audits, and stricter collateralization rules.
On the flip side, many see this as a healthy correction — a purge of undercollateralized, risky experiments. The long-term winners could be robust, transparent protocols, and Bitcoin, with its capped supply and increasing institutional demand, may once again be seen as a flight-to-safety asset.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.