Report: Recent Crypto Market Plunge Puts 1 billion Dollar SUSDe Circular Trading at Risk

On October 29, Sentora Research reported that nearly $1 billion of DeFi positions involving Ethena-pledged USDe (sUSDe) are at risk after the crypto market plunged.
The plunge caused a sharp drop in interest rates in the DeFi market, and the returns of leveraged strategies such as sUSDe circular trading shrank. In the Aave v3 core version, the USDT/USDC borrowing rate is about 2% and 1.5% higher than the sUSDe yield, respectively. Users who use stablecoin leverage to go long sUSDe have negative returns, and the circular position that uses stablecoins to buy sUSDe starts to lose money. If this situation persists, the Aave v3 core version will expose about $1 billion to negative interest margin positions or position squaring. Negative spreads could force collateral to sell or deleverage, reducing liquidity on the trading floor and triggering a chain reaction. Sentora cautioned traders to keep an eye on the spread between Aave's annualized yield and sUSDe's yield, especially when it remains negative, and USDT and USDC pool utilization. With more and more revolving positions now nearing liquidation, in the future, traders should keep an eye out for soaring USDT and USDC pool utilization, which could push up borrowing costs and exacerbate market stress when spreads are negative.