Roots of the Crisis
October witnessed extreme volatility in the crypto market due to a high-risk financial initiative launched by a major exchange. By offering an annual yield of up to 12% in USDe and treating it on par with mainstream stablecoins, the platform indirectly encouraged users to engage in high-leverage operations.
Risk Amplification
- Users converted USDT/USDC into USDe
- Borrowed USDT using USDe as collateral
- Converted borrowed USDT back into USDe
- Repeated the cycle for higher returns
This chain of actions made yields appear as high as 24%, 36%, or even over 70%, masking significant systemic risks. Eventually, a minor market fluctuation triggered massive liquidations, causing USDe to deviate severely from its peg.
Global Fallout
As risks tied to assets like WETH and BNSOL escalated, panic spread across the market. Some tokens nearly traded at zero. The impact was far-reaching, with substantial losses reported by users and institutions worldwide.