From October 10 to 11, the crypto market experienced terrifying moments reminiscent of "Black Friday." Following Trump’s announcement of a 100% tariff policy on China, nearly $450 billion in market value evaporated in an instant, setting a record for the largest single-day liquidation in history—$19 billion.
In this chaos, the synthetic stablecoin USDe issued by Ethena Labs experienced a shocking moment on the Binance exchange: the price plummeted to $0.65, detaching from the $1 peg by as much as 35%.
A sudden drop of 35%, with a sky-high compensation of 283 million USD.
On October 13, Binance released an announcement reviewing the recent technical failure and asset de-pegging incident, confirming that it has compensated affected users approximately 283 million USD, and completed the compensation within 24 hours.
Surprisingly, Binance stated that for users who were passively liquidated due to holding assets such as USDe as collateral, the platform has voluntarily assumed all losses.
This crisis, which could have been avoided, erupted due to the internal mechanism flaws of centralized exchanges, triggering profound reflections within the industry on trading transparency and pricing mechanisms.
Eye of the Storm: Why Did Binance’s Pricing System Fail?
The fatal flaw of internal order book pricing
Guy Young, the founder of Ethena Labs, clearly stated after the incident that the "issuance and redemption process of USDe is operating normally" and that there are no abnormalities with the related collateral assets and mechanisms. He emphasized that the decoupling phenomenon occurred only on the Binance platform, excluding overall systemic risk.
The root of the problem lies in Binance’s pricing mechanism. Young pointed out that "Binance does not use external price oracles, but instead forms USDe quotes based on its internal order book data," which leads to price distortions during times of insufficient liquidity.
Market Maker Arbitrage Mechanism Breakage
At the time of the event, the deposit and withdrawal of USDe on Binance experienced delays, which suppressed market makers from conducting cross-platform arbitrage, effectively preventing the price from stabilizing.
In stark contrast, USDe is in Curve, Fluid and Uniswap A total of approximately 2 billion USD in redemption transactions were generated by major decentralized exchanges, but the price deviation was controlled within about 0.3%.
No Accident: The Fate of "Long Wick Candle" in Centralized Exchanges
Lessons from Gate’s past
In fact, the exchange "Long Wick Candle" events are not uncommon. On June 4th of this year, after Gate launched the $LA/USDT perpetual contract, a similar scenario played out: the price skyrocketed from $0.36 to $27 within seconds, then plummeted to $0.2, while the spot prices on other exchanges remained stable at around $1.
The "Long Wick Candle" phenomenon, which deviates from normal fluctuations, has led to a large number of users being liquidated in a short period of time, with some accounts even experiencing negative balances. Although Gate ultimately promised to compensate $30 million, the decision to only cover the negative balance portion and not the liquidated positions has sparked strong dissatisfaction among users.
The common problems of centralized exchanges
These events reveal the common structural issues of centralized exchanges:
- Black box operation risk: CEX order book is opaque, easily questioned for Long Wick Candle and wash trading.
- Risk control loophole: high leverage contracts + centralized clearing, in extreme market conditions, users become "fish meat".
- Single data source: Over-reliance on internal price indicators can easily distort under abnormal market conditions.
The Truth Behind the Crisis: Has USDe Really Decoupled?
On-chain mechanism is operating normally
Data proves that the stability mechanism of USDe has actually withstood the test throughout the event. Young stated that during the peak of market panic, over 2 billion USD was successfully redeemed within 24 hours, setting a historical record.
The price deviation on major decentralized exchanges is generally below 0.3%, which is similar to the fluctuations of USDC against USDT.
The market is not experiencing panic selling.
Young emphasized that there are already over 90 billion dollars in instantly redeemable assets in the market to support the USDT and USDC reserves of the USDe stablecoin.
In this incident, the actual amount withdrawn accounted for only a small portion, indicating that the market did not experience a panic run.
Better late than never: Binance’s response to the Ethena incident.
Binance’s technical remediation
Binance explained the reasons for the extreme price fluctuations of some spot trading pairs in the announcement:
- Historical limit orders are triggered under unilateral liquidity: some historical limit orders are left in the system for a long time, and in situations of extreme selling pressure and scarce buying, sell orders match with these outdated buy orders, leading to a sudden price crash.
- "Zero Price" Display Issue: Some trading pairs have recently adjusted the minimum quotation precision, resulting in the interface displaying the price as "0". This is only a display issue and does not mean that the actual transaction price is zero.
Binance promises to optimize the UI display and fix the issues with displaying abnormal prices to enhance the trading experience.
The mechanism optimization of Ethena
Ethena will assist oracle providers such as Chaos Labs and Chainlink in quickly distinguishing between "temporary price deviations" and "permanent collateral damage" through a real-time reserve proof mechanism in the future.
At the same time, Ethena also allows any DeFi platform or exchange to apply for an API Key to instantly check the reserve transparency of USDe.
Industry Reflection: The Pricing Power Struggle Between CEX and DEX
The recent USDe decoupling incident has once again raised questions about the pricing mechanisms of centralized exchanges. When an exchange’s internal price indicators can significantly deviate from the liquidity-weighted price across the network, the legitimacy of its pricing power becomes questionable.
This is similar to the transparency issues questioned by users in Gate "LA Long Wick Candle Gate". In that incident, users strongly demanded the platform to disclose the index source composition and anomaly logs to prove there was no internal manipulation.
Decentralized exchanges have shown a more robust price performance during this event. Decentralized oracles like Chainlink effectively avoided price anomalies caused by single points of failure by aggregating multiple data sources.
Lessons from the Past: A Risk Revelation for Traders
For ordinary traders, this event provides valuable risk education:
- Be wary of single exchange prices: When an asset’s price significantly deviates from mainstream prices on a specific exchange, stay alert, as it may be an issue within the exchange rather than a problem with the asset itself.
- Use high leverage with caution: In extreme market conditions, high leverage can easily lead to liquidation, even when stablecoins are used as collateral.
- Pay attention to liquidity depth: The USDe spot market only requires 6 million USD to generate a 4% slippage, and assets with insufficient liquidity are more prone to extreme volatility.
- Understand the platform pricing mechanism: Familiarize yourself with the pricing mechanisms of different exchanges and prioritize using platforms that employ reliable external oracles.
Conclusion: Transparency is the only way for exchanges.
Binance compensated 283 million USD for the USDe decoupling incident, which is not only a compensation for the affected users but also the cost of the flaws in the centralized exchange pricing mechanism. As Guy Young, the founder of Ethena, stated, "This so-called USDe decoupling is actually just an internal price anomaly at Binance, while prices in other major markets are completely normal."
This crisis once again reminds the entire industry: transparency is the lifeline of exchanges, and decentralized infrastructure is an effective path to address these pain points. With increased regulation and heightened user awareness, the "black box operations" of centralized exchanges will become increasingly limited, and full transparency has become an irreversible trend.
For ordinary investors, this event serves as a vivid risk education—understanding the mechanisms of operation even in the largest exchanges, diversifying risks, is essential to truly remain undefeated in the turbulent waters of the cryptocurrency market.
