From the perspective of borrowing and Margin Trading, the USDE unpegging event.

Author: @Super4DeFi

First of all, I declare that I do not understand contracts, only lending. This short article is written in response to a causal chain that my friend posted in their circle of friends, which was written very well. If there are any mistakes or omissions, I hope everyone will correct them.

USDE will be launched on Binance in September, and from September 22 to October 22, there will be a marketing campaign with an APY of 12%. There are three ways to participate in this campaign:

1. VIP loan, can achieve a 3.5 times revolving loan;

2. Deposit and loan are easy, and can achieve 3.5 times through revolving loans;

3. Leverage trading, large holders can achieve up to 5x leverage.

First, let's talk about this de-pegging incident and the conclusion regarding the impact on the three products:

1. VIP loan users, no disaster area. The funding side is not affected. However, on the morning of the 11th, due to Binance taking over the collateral assets, this part was valued at 0, but the liabilities were displayed, so the assets shown in the app at that time = liabilities - spot, most of which were negative. According to feedback from group friends, some people were panicking at this time and hurriedly liquidated various positions, resulting in some losses.

2. Lending Easy, Small Disaster Zone. Before Binance provides compensation, if the principal loss is within 10%, it varies depending on the different leverage multiples of the loan, where the loss = usde liquidation negative premium + forced liquidation costs. Note: The liquidation of Lending Easy does not exacerbate the downward trend of usde, but occurs after usde rebounds, between 0.92 and 0.97 (can be directly calculated. Cross-verification evidence: If your Lending Easy holds eth, btc, etc., you can calculate the liquidation price based on the forced liquidation list and the compensation amount. I happen to have it, eth liquidation price = 3933, liquidation time is between 5:45 and 6:00, avoiding the exhaustion period from 5:30 to 5:45, and it is not the amount for crashing the market.

3. Margin Trading, the Hardest Hit Area. Margin trading is settled in real time, so the liquidation price ranges from 0.99 to 0.66, which is also the main battlefield of this decoupling. Before Binance provided compensation, the losses were enormous, with a cycle of more than 2.5 times leading to a total loss of principal, and for 5 times, the user’s simple liquidation fee is 8% of the principal.

Fuse and Launch (This part is purely speculative)

Trump made negative comments about China's tariffs, causing a massive sell-off of billions of dollars on hype, resulting in a sharp decline in btc and eth…

Note that it has arrived, after igniting the fuse to the leveraged trading products. First, let me state a premise: I suspect that some whale users have placed a considerable amount of BTC and ETH in leveraged trading products, borrowing USDT, thus creating a leveraged cycle of USDE-USDT, or unified accounts sharing margin, leading to liquidation of massive USDE-USDT in leveraged trading due to contract liquidations.

Regardless, the fact is that during this time, the sharp decline of btc and eth triggered the liquidation of his positions (which could be multiple people or just one), and the liquidation engine continuously sold off his usde to pay off the debts in usdt. This initiated a downward spiral, crashing down to the 0.91 level, then to the 0.82-0.8 level. The 0.82 level was the liquidation price for five times the cycle, where a large number of whales were accumulated. In an instant, the level broke, the dam collapsed, and the torrent rushed down to 0.66.

Responsibility and Determination (Some of it is based on speculation)

The usde has a real-time mint-redeem mechanism, and the on-chain usde price is relatively stable. The redeem cost for arbitrage bots is 0.1%, and any price difference greater than 0.1% will automatically trigger arbitrage operations. The selling pressure at 0.92 on Bybit was due to the obstruction of ETH withdrawals on Binance at that time. Smart arbitrageurs converted usde through the BSC chain to Bybit to sell off, but Bybit has a mint-redeem mechanism, which triggered arbitrage from these bots, thus suppressing the price from falling below 0.92.

After the fact, this part of the arbitrage path and bot was already written by a certain team. At that time, they had a contingency plan for the potential blockage of ETH withdrawals on Binance, which involved an alternative solution for USDE arbitrage. It could completely utilize the mint-redeem mechanism on Bybit through the BSC chain for arbitrage, thereby suppressing the decline of USDE on Binance. Unfortunately, their team was sleeping at that time; it's all about fate.

Why is the ETH withdrawal on Binance obstructed? If everyone remembers, Binance once paid 500 ETH in transaction fees for wallet consolidation, and at that time, they were ridiculed by the entire network. I guess that after that incident, Binance's hot wallet withdrawal mechanism was limited, meaning that when the gas on the ETH chain exceeds a certain amount, withdrawals are stopped. From the exchange's perspective, this is reasonable because if there are no restrictions, paying hundreds of U per transaction could realistically lead to losses of hundreds of millions of dollars in gas in a single day. But this time… this mechanism inadvertently locked the lifeline of USDE, meaning that after 5:36, USDE in Binance could not be withdrawn to the chain for minting and redeeming. Even if these arbitrage bots switch to Bybit for arbitrage in a short time, they are also locked by Bybit's withdrawal limit, so everyone could only watch as USDE plummeted to 0.66.

For this reason, in Binance's compensation announcement, the determination of time: from October 11, 2025, 05:36 to 06:16 (UTC+8), those affected by the decoupling will receive compensation for the difference and settlement fees. That is to say, Binance believes that before 5:36 and after 6:16, withdrawals from Binance are normal and everything is market behavior.

Follow-up and Improvements

The oracle parameters for usde set the minimum price, which has not yet been announced by Binance. My suggestion is a dual-track setting: first, the starting point is 0.85, which means the high wall gate of five times the circular loan cannot be easily breached (note that I have never recommended leveraged trading for circular loans, and there is a chart below as evidence); second, it can be evaluated based on the specific situation of ethena assets - positions - liabilities and updated at any time.

Binance has launched an internal mint-redeem mechanism, and arbitrage bots can effectively suppress price declines. This extends to answering a question: why can it suppress prices once it is launched internally? When the gas fees on the ETH chain are high, won't it be congested? To be honest, this is the most critical issue for future improvement. In fact, if anyone can answer this question without looking at my subsequent answers, it indicates that you have graduated in the lending field.

At first, I thought the same way, and even suggested that Binance directly ask Ethena to open another channel, that is, to have Ethena's funds exist under Binance's Ceffu, with a mechanism to switch to the Ceffu-Ethena account to call funds for minting and redeeming in case of emergency. The current mint-redeem is done on-chain, and when the reserve pool is empty, funds are automatically allocated from Ceffu to the reserve pool. There were no problems before, but now the volume at Binance is indeed too large. During blockchain congestion, arbitrage parties cannot cycle through, and Binance's hot wallet cannot possibly pay several hundred U in gas for each transaction.

However, after further in-depth communication with binance and ethena, we got an answer: 10m can be redeemed every 12 seconds (which is one Ethereum block). We can adjust this amount limit on our side through multi-sig, so we can process up to 200m at most. Currently, minting and redeeming can only be done through smart contracts. Gas fees will not affect the speed. We will estimate and pay sufficient gas to ensure that the transaction can be completed within one block, as we always prefer to have minting/redeeming confirmed smoothly. This part of the cost will be passed on to the users.

This is feasible, that is, when the redeem product of usde is within the Binance platform, the redeem fee + gas fee is automatically calculated, and users can choose to pay it voluntarily, thus bypassing the high gas limits of Binance's hot wallet!

Final Words

1. As a heavy on-chain and off-chain lending user, October 11th was the most unusual day I experienced. In fact, it was also the time when I felt the most pressure from the community, involving a considerable amount of money. Even though I urged everyone to use VIP lending, there were always group members who engaged in leveraged trading (the hardest-hit area) and Easy Loan (the less affected area) due to factors like position management. Yesterday, after coordinating and communicating with various parties, it was determined that fortunately, in the end, the overall situation was covered by bn. Beyond professionalism, maintain humility and have more empathy and compassion.

2. At the same time, the perspectives of lending users and contract users are different. After a difficult day, as a lending user, I received almost full compensation on the 12th, so I express some gratitude. From the comments in previous posts, it seems that this may have caused a bad impression for contract users, which was not the intention. I hope for your understanding, and I also hope that your rights will be protected soon.

3. Without the wisdom of great enlightenment, everything is just a result of long illness turning one into a healer, it is all experience, it is all about going through things, learning to utilize it, and next time it will… all become wealth. And I am just that long illness turning into a healer, hence I am here to help the world…

4. Life needs a dull sensitivity, and arbitrage is probably the same. Every day, I intensely optimize in front of the computer, and on October 11, I had a moment of enlightenment. Perhaps in the future, I should discover more of the beauty of life, climb more mountains, rather than focus on web3.