Ethena is experiencing the sharpest capital outflow since its launch. The amount of funds locked in USDe has fallen from the October peak of $14.8 billion to $7.6 billion. This drop exceeds 50% and shows how quickly investors are exiting instruments based on market-driven yields.
The main reason for the outflow is the decline in yield. The annual rate for USDe has dropped to 5.1%, falling below the borrowing cost of USDC on Aave, where rates reach 5.4%. As soon as the yield stopped covering expenses, participants began closing their strategies.
Yield compressed, and USDe mechanics came under pressure
USDe works as a synthetic stablecoin: Ethena holds a spot crypto asset as collateral and simultaneously opens a short position on the perpetual futures market. The income is generated from the difference in funding rates between these positions.
While the rates were double-digit, USDe grew rapidly. But after a sharp decline in futures activity, funding weakened, the market became less hot, and yields dropped significantly.
This change in dynamics immediately hit Ethena’s key growth driver—aggressive leverage strategies.
Leverage cycles stop working
Ethena was most promoted through so-called “looped” strategies on DeFi platforms. Users staked USDe as collateral, borrowed USDC at a high LTV ratio, bought more sUSDe, and repeated the cycle. In good conditions, this allowed for tenfold leverage and extremely high yields.
But the entire economy was built on one assumption: USDe yield must exceed borrowing costs. As soon as APY dropped to 5.1% and borrowing rose to 5.4%, the cycle lost its meaning.
Leverage positions began to close en masse, accelerating the outflow. The same mechanism that inflated TVL to record levels became the reason for an equally rapid collapse.
On-chain activity remains
Despite the sharp reduction in TVL, the USDe network does not look dead. Over the past month, more than $50 billion in transactions have passed through the stablecoin. This indicates that some demand for the token remains. Users continue to use USDe for settlements and operations not related to leverage.
However, the project’s sustainability remains in question. Many DeFi protocols that operated on increased yields are already starting to close programs or are facing questions about long-term viability. The abrupt closure of leverage strategies once again showed: when yield stops working, capital leaves as quickly as it arrived.
Ethena must now prove that USDe can exist not only as a tool for yield strategies but also as a full-fledged operational stablecoin with real use cases.
Read more: Deribit sets record for open options ahead of November contract expiration
