DeFi’s newest drama: $1B at risk in sUSDe mayhem – will the write a happy ending? ⚠️💸

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Markets

What to know:

  • The Oct. 10 market crash has made nearly $1 billion in DeFi’s sUSDe loop trades the subject of existential dread. 😩
  • Yields on these strategies are now as tempting as a soggy crumpet-negative and barely worth a glance. 🍞
  • Traders, keep your eyes on the spread between Aave’s borrow APY and sUSDe yield (and maybe a bucket of popcorn). 🍿

Following the infamous Oct. 10 market crash-a day best remembered for its theatricality-Sentora Research has identified a rather unappealing subplot: nearly $1 billion in DeFi positions involving Ethena’s staked USDe (sUSDe) are now looming like a bad hat at a garden party. 🎩💥

Since said crash, DeFi markets have descended into a comedown, with rates plummeting faster than morale in a room of overborrowed crypto enthusiasts. Yields on the sUSDe loop trade? A dismal trifecta of negative returns. sUSDe, Ethena’s staked marvel, has replaced yield-generating gold with a leaden “Ah, I see.” 🥶

The Loop

This beloved strategy-featuring depositing sUSDe on Aave or Pendle to borrow Tether or USDC-has become less of a loop and more of a very expensive tightrope. Borrow the borrowed funds to buy more sUSDe. Redeposit it. Borrow more. Repeat until the music stops, the champagne turns to vinegar, and liquidity evaporates like a drop of mercury. 🎭

The charm of this cycle lies entirely in the “positive carry”-a financial euphemism for “maybe this will work, if you squint hard enough.” But now…

Negative Carry

Following the crash, the carry has flipped from positive to “oh dear, not this.” Sentora Research dryly observed that on Aave v3 Core, USDT/USDC borrow rates are now >2.0% above sUSDe yields, rendering the trade less a revenue stream and more a seance for profits that will never return. 🕯️

As spreads linger below zero, these looped positions-like a soufflé in a hurricane-threaten to unravel, shedding $1 billion in liquidity with the poise of a broken umbrella in a rainstorm. Forced sales? Deleveraging? A cascading market effect? Ah, Shakespeare never penned such a tragedy. 🎭

What Next?

Traders must now monitor spreads like a cat watches a laser dot-with equal parts obsession and frustration. Watch the borrow APY on Aave versus the sUSDe yield, and keep an eye on utilization rates in USDT/USDC pools. Too high, and you risk borrowing costs spiking faster than a canary in a coal mine. 🐦

And those looped positions? Well, many now teeter within 5% of liquidation. Imagine a high-stakes dance with no music. Nerve-wracking? Of course. Exhilarating? Only if your idea of fun is fiscal freefall. 🎢

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2025-10-29 07:49