USDe TVL drops by more than half… on-chain utilization rises despite leverage liquidation pressure

Ethena's stablecoin USDe has seen its TVL plunge amid rate compression and leverage unwinding, while on-chain utilization has actually increased.

On the 25th (local time), The Block reported that USDe TVL fell from $14.8 billion in October to $7.6 billion, decreasing by more than half. Nonetheless, on-chain trading volume over the past month exceeded $50 billion, suggesting that real usage demand is being maintained.

USDe uses a structure that combines spot collateral and perpetual futures short positions to convert interest rate differentials into profits, and its APY, which was in double digits at the start of the year, has fallen to about 5.1% due to weakened market leverage demand. The decline in yields led to liquidations of leverage loop strategies that had spread across DeFi lending protocols, accelerating the TVL decline.

According to industry sources, in particular, loop strategies that involved depositing sUSDe as collateral on AAVE, borrowing USDC, and then repurchasing sUSDe were widely used. This strategy was effective when USDe yields exceeded the cost of borrowing USDC, but recently as USDe APY fell below AAVE USDC borrowing rate of 5.4%, liquidations have proceeded rapidly.

It was also reported that concerns raised about the sustainability of stablecoin-based yield farming structures in some DeFi protocols have affected USDe deleveraging. Yield-linked stablecoins accelerate TVL growth during upswings but are vulnerable in that capital outflows expand at the same pace when yields fall.