USD has not depegged, it's just that a certain exchange has insufficient liquidity!

During Friday's tumultuous market sell-off, Ethena's synthetic dollar USDe maintained its 1:1 peg to the USD through cash and arbitrage, briefly dropping to as low as 65 cents on one exchange. However, this dramatic depeg was limited to that exchange and did not reflect the global dollar depreciation implied by discussions on social media. Most USDe trades occur on decentralized platforms such as Fluid, Curve, and a certain DEX—these venues boast hundreds of millions in liquidity. In contrast, the aforementioned exchange holds only tens of millions in USDe liquidity. The price deviation on Curve is less than 100 basis points, consistent with the slight fluctuations of USDC and USDT on that exchange. On another platform, USDe only dipped slightly to about 92 cents, starkly contrasting with the crash on the first exchange. So what went wrong with that exchange?

First of all, unlike other exchanges that have direct dealer relationships and can seamlessly mint and redeem USDe on their platforms, this exchange lacks such connections. This deficiency prevents market makers from quickly executing depeg arbitrage when the exchange's infrastructure collapses due to volatility, thus failing to restore balance during sell-offs.

Another issue is the exchange's oracle, which references the prices from its own relatively illiquid order book, resulting in large-scale liquidations of USDe positions. Instead, it should focus on liquidity channels like Curve. This leads to automatic liquidations stacking up in the exchange's unified collateral system, causing a significant drop in the price of USDe. $ENA #USDE