The total value locked (TVL) in Ethena's
USDe
stablecoin protocol has dropped by half to $7.6 billion,
representing a steep fall from its high in October
when it reached $14.8 billion. This sharp contraction, caused by a rapid decrease in yields and the unwinding of leveraged trades, has sparked debate about the long-term viability of yield-generating stablecoins within decentralized finance (DeFi)
as highlighted in recent research
.
The turmoil started when USDe’s annual percentage yield (APY) slid from double digits to 5.1%,
falling below borrowing rates on platforms such as Aave
, which are still around 5.4%. This led to a negative carry,
prompting investors to unwind leveraged trades
that used staked USDe (sUSDe) as collateral. The resulting wave of liquidations sped up the TVL decline, as traders using leverage faced margin calls and the value of sUSDe collateral dropped
based on market data
.
This downturn exposes the vulnerability of leverage-based strategies in DeFi. Many participants had used looping—repeatedly borrowing
USDC
against sUSDe to amplify their exposure—as long as USDe’s APY stayed above borrowing costs
according to market reports
. But as yields fell, these strategies became loss-making,
setting off a feedback loop of withdrawals and forced sales
. The deleveraging has been made worse by wider issues in DeFi, including the closure of yield-farming projects and
increased regulatory attention on synthetic stablecoins
.
Even with the TVL slump,
USDe continues to see strong onchain activity
, with transaction volumes exceeding $50 billion last month. The stablecoin keeps its $1 value by holding spot crypto as collateral and hedging with short positions in perpetual futures
as noted in market analysis
. However,
the protocol’s dependence on volatile crypto assets
and recent losses in Ethereum-based treasuries—such as Bitmine’s $4.1 billion in unrealized ETH declines—have heightened risk.
Regulatory shifts could further influence USDe’s future. Anchorage Digital, a federally regulated crypto bank, has introduced a rewards program for USDe and USDtb holders under the GENIUS Act, which bans yield-paying stablecoins. By distributing rewards through a separate entity, Anchorage seeks to remain compliant with U.S. law while still incentivizing token holders. This strategy may become a model for other stablecoin issuers adapting to changing regulations.
The TVL plunge highlights broader dangers for those investing in stablecoins. As yields return to normal,
protocols must find a balance between attractive returns
and maintaining sound collateral and liquidation systems. For now,
USDe’s TVL is only a fraction of its former high
, and any rebound will depend on yield stabilization, better market conditions, or protocol improvements.
