When 'Stablecoin' Isn't So Stable: USDe's Depegging Shows Stablecoins' Hidden Risks

The recent cryptocurrency selloff has once again exposed its volatile nature.

In a Thursday column, Bloomberg’s Lionel Laurent noted that while stablecoins are designed to maintain price stability and be backed by real assets, not all of them have been tested through severe market downturns—and some have shown vulnerabilities under stress.

During last Friday’s tariff-driven crypto rout, USDe, the world’s third-largest stablecoin by market value, briefly lost its U.S. dollar peg, plunging to as low as $0.65 on Binance. The unusual fluctuation sparked fresh scrutiny of USDe’s underlying mechanism and revealed just how fragile these so-called “digital dollars” can be under extreme market conditions.

Laurent argued that while Circle’s USDC and Tether’s USDT function more like tokenized money market funds, USDe resembles a tokenized hedge fund. It earns returns from crypto-native activities such as staking Ethereum and hedging crypto derivatives, rather than traditional dollar-backed assets. S&P Global Ratings recently rated the USDe’s ability to maintain its peg as “weak.”

This episode serves as a reminder that, as regulators face mounting pressure to catch up with the future of money, the calls for greater caution toward stablecoins deserve renewed attention.

During last Friday’s crypto selloff, an estimated $19 billion in leveraged positions were liquidated, with highly volatile altcoins collapsing to near zero amid a wave of margin calls.

Amid this chaos, USDe fell to a low of $0.65 on Binance. While the market later stabilized, this was far from what investors expect from a so-called “digital dollar.”

Interestingly, the depegging appeared isolated to Binance, prompting debate over whether the issue stemmed from the stablecoin itself or from exchange-specific irregularities.

As the world’s largest crypto exchange, Binance admitted to a series of technical problems affecting trades in several tokens, including USDe, and said it had paid about $283 million in compensation to affected users.

Laurent noted that USDe’s underlying model is now under growing scrutiny. Whereas Circle and Tether reinvest dollar reserves into Treasuries and cash equivalents, USDe instead relies on crypto-native yield strategies—such as staking Ethereum or taking hedged positions in perpetual futures, a type of unregulated derivative product that allows traders to speculate with leverage around the clock and without expiry.

USDe claims that these hedges keep the dollar value of its backing “relatively stable under most market conditions.”

According to Jonathan Bier, CEO of Farside Investors, the strategy has been highly profitable: demand for leveraged long positions in crypto has remained extremely strong, helping USDe’s market capitalization swell to $14 billion. Last year, USDe offered yields of over 20%, while last month, Binance promoted 12% annualized returns for users holding USDe.

Earlier this year, S&P Global Ratings wrote that “so far, so good” in its assessment of USDe—but cautioned that the token relies heavily on a fully functioning crypto exchange ecosystem and remains untested in a true crisis scenario. The agency rated the token’s ability to maintain its peg as weak.

As is often the case in crypto, last week’s turmoil proved that fears about what might happen under abnormal market stress were well-founded. Although Ethena, the company behind USDe, insisted that minting and redemption operations continued normally during the selloff, the combination of forced liquidations, redemption pressure, and dependence on Binance’s infrastructure amplified the shockwaves.

Laurent stressed that this is not an argument against the existence of stablecoins, nor a claim that any market can ever be risk-free—even in traditional finance. While the latest volatility was painful, USDe remains far from the opaque and fragile collapse seen in the Terra-Luna debacle of 2022.

Still, the fact that even crypto professionals were surprised by the speed and scale of the selloff should lend weight to warnings urging caution toward stablecoins. As regulators race to catch up with financial innovation—and as the U.S. considers legalizing domestic perpetual futures trading—the hope is that the next crash won’t expose even more tokenized hedge funds masquerading as digital dollars.