Exclusively obtained orderbook data sheds light on the recent crash of the algorithmic stablecoin USDE, revealing a complex interplay of factors that led to its temporary depeg. The incident, which occurred on October 10, 2025, sent shockwaves through the cryptocurrency market, triggering massive liquidations and raising concerns about the stability of synthetic stablecoins.
The primary catalyst for the crash appears to be a vulnerability in Binance's pricing oracle system. Unlike other exchanges that rely on external data feeds to determine asset prices, Binance used its own internal order book to value collateral for margin trading. This created an opportunity for exploitation, as the exchange's internal pricing system diverged from broader market prices, especially during periods of high volatility and thin liquidity.
According to Ethena Labs founder Guy Young, the USDE depeg on Binance was primarily due to this internal oracle issue, and not due to fundamental problems with the USDE token itself. He stated that USDE minting and redemption processes functioned correctly throughout the event, with $2 billion in USDE being redeemed across various exchanges with minimal price deviations. However, on Binance, USDE's price plummeted to as low as $0.65.
This discrepancy triggered cascading liquidations within Binance's "Unified Account" system, which allows traders to use various assets, including USDE, as collateral. As USDE's price fell on the exchange, traders faced margin calls and forced sales, further amplifying the downward pressure on the token. The situation was exacerbated by Binance's temporary restriction of withdrawals due to a surge in Ethereum network fees, preventing market makers from arbitraging the price difference and restoring the peg.
Rena Labs, an AI-driven market analytics firm, detected unusual activity on the USDE/USDT trading pair, noting a sharp and complex market dislocation. Professional market makers withdrew liquidity from the pair on a massive scale, potentially due to automated risk-scoring systems initiating defensive quote withdrawals to limit exposure.
While Ethena Labs maintains that USDE remained overcollateralized throughout the ordeal, the event has reignited the debate about the true nature of algorithmic stablecoins and their susceptibility to "death spirals". Critics argue that USDE, which offers high yields through leveraged "rehypothecation" cycles, functions more like an investment instrument than a traditional stablecoin. These cycles involve investors repeatedly borrowing and redepositing USDE to earn returns of up to 50% APY, amplifying leverage and increasing the risk of mass liquidations during market downturns.
Adding another layer of complexity, the USDE crash coincided with a broader market sell-off triggered by US President Donald Trump's announcement of 100% tariffs on Chinese imports. This geopolitical development created a global "risk-off" sentiment, prompting investors to seek safe-haven assets and further draining liquidity from the crypto market. The total cryptocurrency market capitalization declined significantly, and over $19 billion in leveraged positions were liquidated.
In the aftermath of the crash, Binance has reimbursed users over $283 million for losses related to the incident. The exchange has also pledged to optimize its UI display and apply corrections for related abnormal prices. Ethena Labs has announced new oracle and proof-of-reserve reforms to increase transparency and bolster confidence in USDE's stability.
The USDE crash serves as a stark reminder of the inherent risks in the cryptocurrency market and the importance of robust risk management practices. It also highlights the need for centralized exchanges to adopt more reliable pricing oracles and address infrastructure vulnerabilities that can be exploited during periods of market stress. As the cryptocurrency landscape continues to evolve, a focus on transparency, security, and systemic resilience will be crucial for fostering long-term stability and growth.
