Infini Global | USDe’s 60-Minute Panic: A Billion-Dollar Perfect Storm — Who Pays the Price?

2025.10.14

Around 5:00 p.m. ET on October 10, 2025, countless crypto investors around the world found themselves unable to sleep. Within just two hours, USDe, a stablecoin once hailed as the next-generation star of DeFi, plunged off a cliff — from $1.00 to $0.65 on Binance’s USDe/USDT spot pair. The result: a catastrophic liquidation cascade that wiped out billions of dollars in value. But this was far more than a simple depeg. It was a perfect storm — a convergence of macro black swans, the lure of extreme leverage, structural flaws in the protocol itself, and the failure of major exchange systems. Like a prism, the event refracted the deepest vulnerabilities of today’s crypto ecosystem. Today, we’ll unravel the story step by step — a full reconstruction of this heart-stopping financial drama.

Act I: The Butterfly Across the Pacific

The spark that ignited the storm began with a piece of news that, at first glance, seemed unrelated to crypto. At around 5:00 p.m. ET on October 10, U.S. President Donald Trump suddenly announced plans to impose a 100% punitive tariff on Chinese goods. Within minutes, global financial markets went into shock. Panic spread like contagion, and Bitcoin (BTC) and Ethereum (ETH) — the flagbearers of risk assets — tumbled sharply, sending the entire market into a state of alarm. That butterfly flapping its wings across the Pacific set off the chain reaction that would soon engulf the entire crypto world.

Act II: The Chain Collapse — Death Spiral on the Exchanges

The macro panic quickly cascaded down to the micro level. A direct hit landed squarely on USDe, exploding first on the exchanges where liquidity was most concentrated.

05:10 — BTC and ETH hit intraday lows; selling pressure peaks.
05:20 — The storm hits. USDe starts to slip: $1.00 → $0.90 → $0.80 → $0.70…
05:44 — The exit door slams shut. As on-chain congestion spiked and gas fees soared, exchange risk systems automatically suspended ETH withdrawals. What looked like a routine safeguard turned out to be the final straw — USDe broke below $0.70.
06:16 — The abyss. Continuous sell-offs and cascading liquidations briefly pulled USDe back above $0.90 — only for it to collapse again, this time to $0.65.

In just sixty minutes, what began as a localized price dip escalated into a full-blown crisis of confidence and a liquidation tsunami. Why? Because two powerful amplifiers were triggered at once.

Act III: The Original Sins — Two Fatal Amplifiers

The USDe depeg wasn’t a random accident. The risks had been quietly accumulating long before the storm hit.

Amplifier 1: The Leverage Loop — A Game of Borrowed Fire

Ever heard of a “risk-free 40–50% annual yield”? That was the irresistible story fueling USDe’s growth right before its fall. Through Ethena Protocol and various exchange “earn” products, USDe offered up to 12% base APY. Some clever — or reckless — players devised a high-leverage loop strategy:

Deposit USDe into a lending protocol like Aave.
Use it as collateral to borrow another stablecoin (e.g. USDT).
Use that USDT to buy more USDe.
Repeat — stacking leverage up to 4× or even 5×.

It’s the financial equivalent of using one mortgage to buy multiple houses. Imagine owning a $1 million home, taking out a $700 k loan against it, using that loan as down payment for another house, and doing it again and again. When prices rise, you’re rich on paper; when they fall even slightly, the bank takes everything. So when USDe slipped from $1.00 to $0.98, a 5×-levered user instantly lost 10% of their collateral value. Once that crossed the liquidation threshold, smart contracts automatically dumped their USDe to repay debt — which pushed prices down further, triggering even more liquidations. A self-feeding death spiral was born.

Amplifier 2: The Broken Referee and the Blocked Fire Exit

If leverage loops were the dynamite, exchanges played the role of the referee who lit the fuse — and then locked the fire escape. 1. The broken price feed — an internal oracle gone wrong Some exchanges valued collateral using their own USDe/USDT pair prices rather than a global fair-market price. That pair had shallow liquidity, so when bots began dumping USDe during liquidations, the pool collapsed instantly. It’s like having your gold jewelry appraised not at international gold prices, but by the desperate pawnbroker downstairs. When panic hits, he offers ten cents on the dollar — and your “collateral” is suddenly worthless, even though gold prices elsewhere never changed.

As a result, the system saw USDe at $0.65 on its own exchange and assumed users were underwater, triggering unwarranted forced liquidations that magnified user losses.

2. The blocked fire exit — ETH withdrawals suspended When a stablecoin depegs, arbitrageurs usually rush in to restore equilibrium. Their playbook is simple:

buy USDe at $0.65 on an exchange → withdraw to the chain → redeem via Ethena for $1.00 worth of ETH → sell the ETH for profit.

This creates buying pressure that lifts the peg. But just as the market needed them most, exchanges paused ETH withdrawals due to congestion — effectively locking the firefighters outside. The rescue mechanism was cut off, and the price free-fall deepened.

Act IV: Faces in the Storm

Every crisis has its survivors and its casualties.

User Group	Their Story	Outcome
Leverage Traders	They were the most zealous believers in the 50% APY narrative — the main players of the leverage-loop game. When the liquidation spiral began, they became the first victims swallowed by it.	Asset Wipeout. With 5× leverage, even a 20% drop was enough to erase their entire positions. They were both victims and, unwittingly, participants in the chain reaction.
Deposit & Earn Users	More conservative participants who may have joined exchange-based USDe yield programs, or engaged in limited leveraged operations.	A False Sense of Safety. They experienced temporary capital freezes and redemption delays, but most eventually recovered their funds with minimal loss.
VIP Loan Users	High-net-worth clients whose positions were financed directly by the exchanges. In theory, they should have been the safest.	Errors and Losses. During the turmoil, display errors on some trading apps (e.g., negative balances) triggered panic and manual sell-offs, leading to unnecessary losses.
Ordinary Holders	Simply held USDe in their wallets, without participating in leverage or lending activities.	An Emotional Roller Coaster. Their asset values fluctuated with USDe’s price, but as long as they didn’t sell at the bottom, they eventually saw their balances restored.

Ultimately, several exchanges — most notably Binance — acknowledged internal failures such as faulty oracle pricing and delayed system responses. They announced a $283 million compensation plan to fully reimburse affected users. This wasn’t an act of generosity — it was a tacit admission of responsibility.

Finale: Lessons Written in Blood

USDe’s 60-minute panic sounded a clear alarm for the entire crypto industry. Accountability lies across multiple fronts:

Ethena Protocol: Its high-yield model, fueled by leverage loops, proved fragile under extreme stress. Incentivizing risk with oversized APY inevitably invites collapse.
Centralized Exchanges (e.g., Binance): As core market infrastructure, flawed pricing mechanisms and weak risk controls turned a protocol issue into a full-scale market disaster.
Investors: Those chasing “risk-free” double-digit yields must recognize the truth — if you’re earning what seems like free interest, you are the product. The protocol is earning your principal.

To prevent the next perfect storm, change is non-negotiable. The USDe incident was a painful but invaluable stress test. It reminded us of the oldest law in finance:

Risk and reward are inseparable. There is no free lunch.

In systems handling tens of billions, even the smallest design flaw or operational lapse can spiral into catastrophe under pressure. USDe survived this time, and the exchanges took responsibility — but next time, we may not be so lucky.