Report: Recent Cryptocurrency Market Crash Puts $1 Billion sUSDe Circular Trading at Risk

Summary generated by AI: On October 11, after the crypto market crash, nearly $1 billion worth of DeFi positions involving sUSDe faced risks. The market interest rates plummeted, causing borrowing returns to turn negative, threatening the liquidity and stability of AAVE v3 Core. Traders should monitor the interest rate spread between sUSDe and USDT/USDC.

According to CoinDesk on October 29, Sentora Research reported that after the big dump on October 11, nearly $1 billion of DeFi positions involving Ethena Stake sUSDe were at risk. The crash caused DeFi market interest rates to drop sharply, shrinking returns from leverage strategies like sUSDe circular trading. In AAVE v3 Core, the USDT/USDC borrowing interest rates are approximately 2.0% and 1.5% higher than sUSDe returns, respectively. Users leveraging stablecoins to go long on sUSDe are experiencing negative returns, and circular positions involving borrowing stablecoins to buy sUSDe are starting to incur losses. If this situation persists, AAVE v3 Core could be exposed to positions worth about $1 billion with negative interest rate spreads or face liquidation. Negative spreads may force collateral to be dumped or leverage to be reduced, weakening marketplace liquidity and triggering a chain reaction.

Sentora warns traders to follow the interest rate spread between AAVE borrowing annual yields and sUSDe returns, especially when it remains negative, as well as the utilization rates of USDT and USDC borrowing pools. Increasingly, circular positions are approaching liquidation. Moving forward, traders should watch for surges in the utilization rates of USDT and USDC borrowing pools, which could drive up borrowing costs and intensify market pressure when spreads are negative.