USDe, the third largest stablecoin on the market, lost its parity with the dollar on Binance, where it was trading close to $0.65 on October 10. The issuing company of the digital asset, Ethena Labs, explained that the disparity did not affect the internal functioning of the protocol or the minting or redemption operations, implying that the responsibility fell on the largest cryptocurrency exchange platform in the world.
The event, which occurred between 21:36 and 22:16 UTC on Friday, It occurred in the midst of a global sell-off in the cryptocurrency marketestimated between USD 19,000 and 20,000 million in leveraged positions. Binance alone recorded liquidations of more than 1.4 billion in long positions and 981 million in short positions.
In this context, the price of USDe fell 35% on the exchange, while on decentralized platforms such as Curve, Fluid or Uniswap it remained with deviations of less than 0.3%.
According to data from the company behind USDe, the problem was localized. Most USDe trading occurs on decentralized exchanges with liquidity greater than 300 million dollars. On Binance, liquidity was barely in the tens of millions. This allowed massive sales —estimated in 90 million USDe—will generate a cascade effect.
Additionally, positions using USDe as collateral were automatically liquidated, amplifying selling pressure and deepening the price drop.
The following graph shows the depeg that USDe had in its price on Binance during the day of October 10 and its subsequent recovery:
A technical dislocation in the market
Binance acknowledged flaws in its system, which was overloaded by extreme trading volume during Friday’s crash. The time window allowed the system to collapse during market volatility. As a result, Binance compensated affected users with $283 million.
Guy Young, founder of Ethena Labs, suggested that the episode was an isolated event caused by Binance and not a global unbundling. He explained that “the severe price discrepancy was isolated to a single place,” that is, on that exchange, because it was based on its own oracle.. And it was not an impact on the deepest group of liquidity.
For Young, Binance “faced deposit and withdrawal issues during the USDe sell-off, which did not allow market makers to close the loop.”
Haseeb Qureshi, Managing Partner at Dragonfly, affirms that what happened on Friday “was a flash crash specific to Binance”, which, in his opinion, could have been avoided for “a better market structure.”
So remember that USDe on its main venue, which is the Curve platform, was actually trading at a tight parity throughout the day of the crash. “This is really different than what you would describe as disengagement,” he says.
The chart below shows the USDe price disparity that was reflected on Binance, ByBit and Curve during the market crash:
The role of oracles
The technical root of the incident was the Binance oracle system. The exchange used its own order book as the main source of prices within the Unified Account system.
In doing so, it ignored external sources or redemption prices provided by oracles like Chainlink. When the internal order book was emptied, the oracle reported a price of $0.65, which activated automatic liquidations of collateral linked to USDe.
As defined by the CriptoNoticias Cryptopedia, an oracle is a service that provides real-world data to decentralized applications (dApps) and smart contracts. Oracles allow decentralized finance (DeFi) applications to access external information, such as prices, events, and other data, that do not reside directly on cryptocurrency networks.
For Qureshi, “Binance poorly implemented its oracle and began liquidating positions it should not have.” «Good settlement mechanisms do not kick in during sudden declines. “If you are not the main venue for an asset – and Binance is not the main venue for USDe – then you should look at the price in the main venue,” he recommends.
“If you only look at your own order book, you will over-liquidate. That caused Binance to start liquidating USDe as if it were worth $0.80, which caused a cascade of liquidations,” he said.
In fact, it was Ethena’s pricing methodology that prevented the impact from spreading. Omer Goldberg, founder of the firm Chaos Labs, points out that USD 4.5 billion of positions were saved in the DeFi protocol Aave, as well as some 180 million in liquidation penalties and later waterfalls.
Manipulation hypothesis
On the other hand, independent analysts detected signs of coordination between traders that they would have taken advantage of the vulnerability in Binance. Massive withdrawals of up to $90 million occurred as the exchange acknowledged problems with its oracles and reported an update scheduled for October 14.
Journalist and market analyst, Colin Wu, described the event as a “premeditated attack”, which It had losses estimated between 500 million and 1,000 million dollars for the exchange.
For financial analyst Carmelo Alemán, the matter is more serious. According to him, the collapse was a consequence of coordinated practices between exchanges and market makers.
“The exchanges and market makers are in cahoots to rob people,” he tells CriptoNoticias, adding that the market crash “has not been a sign of something new, but rather what has been happening for a long time.”
«And this was theft, it was not a market reaction. “They (the market makers) take any scenario, like Trump’s announcement, to burst the market and rob people,” he lambasts, while ruling out that the market had fallen organically after US President Donald Trump hinted at the resumption of the trade war with China (something he later reversed).
Likewise, he denies that whales or large investors caused the market crash, which accumulated $20 billion in liquidations, “because when the entire ecosystem collapses at the same time, that is not human coordination. “They do that with artificial intelligence.”
From their perspective, “the exchanges send them the tokens, the market makers sell them en masse and then dump the market. “They don’t let it go up.”