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On October 10-11, a significant market collapse severely impacted the cryptocurrency sector, causing substantial value losses in Bitcoin 
$92,177 and altcoins while also disrupting investment strategies targeting Ethena’s staked USDe (sUSDe) positions. According to a report by research firm Sentora Research, approximately $1 billion in sUSDe collateralized positions in DeFi protocols are now at risk as yield rates have turned negative.
sUSDe Faces a Negative Yield Cycle
Ethena’s sUSDe initially provided investors with positive yield opportunities through a derivative asset that earned returns by staking USDe tokens. However, the sharp market downturn on October 10-11 led to a decline in interest rates in DeFi markets, reversing these benefits. Sentora Research noted that the borrowing interest rates for USDT and USDC on Aave v3 Core have reached 2% and 1.5% respectively, surpassing the yield of sUSDe. This difference has diminished the appeal of leveraged sUSDe strategies.
Investors leveraged sUSDe as collateral in protocols like Aave and Pendle, borrowing USDT or USDC to reinvest in sUSDe. In times when borrowing costs were low and staking yields were high, this cycle generated significant profits. Nevertheless, the emergence of negative yield has rendered this mechanism disadvantageous. According to the company’s report, if the negative yield persists, leveraged positions worth approximately $1 billion may face the threat of liquidation.
Liquidity Pressure and Potential Chain Reactions
Sentora Research highlighted the risk of increased collateral sales and position reductions within DeFi protocols if negative yields continue. Such a scenario could weaken the liquidity of both sUSDe collateral and borrowed stablecoins in the market. The high borrowing rates on Aave v3 Core, in particular, could trigger a cascade of liquidations.
The research firm emphasized that investors should closely monitor the difference between Aave’s borrowing annual percentage yield (APY) and sUSDe returns. Additionally, a sudden increase in the utilization rates of USDT and USDC pools could raise borrowing costs, deepening the pressure. Sentora Research pointed out that many positions are only 5% away from liquidation, indicating that even slight market fluctuations could lead to these positions being liquidated.
