Interpretation of the USDe depegging event: Is it a case of no eggs left unbroken under the roof during the liquidation of 19.3 billion USD, or a deliberate attack targeting the flaws of the CEX mechanism?

On October 10th, a thrilling big dump occurred in the crypto market. In just 40 minutes, nearly 1.7 million traders faced liquidation, with a total liquidation amount in the global crypto market reaching $19.3 billion. However, the disaster was triggered not by a general market fall, but by a technical detail that even professional investors can easily overlook—the internal pricing mechanism of the exchange.

Event Review: Forty Minutes of Market Massacre

The trigger for this crisis was the abnormal price fluctuations of three assets on top exchanges: the stablecoin USDe depegged and fell to $0.65, while the other two tokens BNSOL and WBETH also collapsed simultaneously.

Interestingly, these assets maintain normal prices on other exchanges. WBETH is actually valued 88.7% lower on this platform than Ethereum, while remaining stable on other platforms.

Meanwhile, the Bitcoin market has also experienced severe fluctuations. Just before and after the event, the price of Bitcoin had just broken through the $115,000 mark, while Ethereum also returned to above $4,100, with an intraday increase of over 11%.

This discordant price movement triggered a chain reaction. Due to the unified account system of the CEX allowing users to use various assets as collateral for leveraged trading, when the value of these collaterals drops abnormally, a large number of positions are automatically liquidated.

Root Cause of the Vulnerability: The Exchange Pricing Mechanism Has Fatal Flaws

The core of the issue lies in how the CEX determines the prices of these tokens. Unlike other exchanges, the platform uses the buy and sell order information from its own internal order book to set the margin trading prices.

Guy Young, the founder of Ethena Labs, pointed out that the decoupling of USDe is precisely because the platform's pricing system relies on its own limited liquidity, rather than referring to the prices of multiple mainstream exchanges.

When trading volume is sparse, the vulnerability of this pricing mechanism is fully exposed. On October 6th, the exchange recognized this issue and announced plans to switch to more reliable external data sources for pricing on October 14th.

However, the repair plan has not yet been implemented, and the attackers have seized the opportunity of this eight-day time window.

Attack Method: A Perfect Storm of Precisely Exploiting Vulnerabilities

On October 9, a whale began to establish a large short position on the decentralized exchange Hyperliquid. The trader controls over 100,000 bitcoins, opening a $752.9 million bitcoin short and a $353.1 million ethereum short.

The timing of the choice is questionable - just 30 minutes before Trump announced a 100% tariff on China, this whale increased its bet. The next day, when the market was turbulent due to the tariff news, most of these positions were liquidated, and the trader took away about $200 million in profit.

During the big dump on October 10, the trading volume of the three affected tokens on the exchange reached between $3.5 billion and $4 billion. Estimated losses are between $500 million and $1 billion.

An executive from the Conflux network described the process: as Bitcoin and other cryptocurrencies fall, traders using these tokens as collateral see their margin requirements rise sharply. Automated systems begin to liquidate positions to cover losses, creating a vicious cycle.

Project Party Response: USDe Performs Normally on Other Platforms

Ethena Labs defends its protocol, emphasizing that USDe itself has not failed. The token's creation and redemption system has operated normally throughout the crash.

About $2 billion of USDe has been redeemed on other platforms like Curve and Uniswap, with the price consistently staying within 0.3% of $1.

The on-chain data from the Aave lending platform shows that USDe maintains its peg to the US dollar outside of the exchange. The issue is completely isolated from the platform's internal pricing system.

Young stated: "If all currency markets refer to the most liquid liquidity pools, no one will be Get Liquidated."

Exchange Response: Emergency Apology and Compensation Plan

After the incident, the CEX quickly took action. Both the co-founder and the CEO publicly apologized, and the exchange announced compensation for users who held USDe, BNSOL, or WBETH as collateral during the 40-minute crash window.

The compensation plan stipulates that the amount paid is equal to the difference between the market price at midnight on October 11 and the liquidation price of each user. The platform stated that these payments will be allocated within 72 hours.

The exchange also announced three remedial measures: increasing the redemption price for the index calculation of all three tokens, setting a minimum price threshold for USDe, and more frequent reviews of risk control.

Market Impact and Industry Reflection

This incident occurred during a sensitive period—the crypto market was already turbulent due to the tense situation in China-U.S. trade. According to CoinGlass data, in the last 24 hours, a total of 183,988 people were Get Liquidated across the network, with a total liquidation amount of $630 million.

Executives in the encryption industry are calling for regulatory intervention. Another CEX CEO, Kris Marszalek, urged regulators to investigate exchanges with high liquidation volumes, pointing out that the $20 billion loss has harmed many users.

Tom Lee, the chairman of BitMine, commented on the market correction, stating that he believes this pullback is a "healthy washout process," but also acknowledges that market volatility is severe. According to Lookonchain data, BitMine has been continuously increasing its position in Ethereum during the market cleanout, having purchased a total of 128,000 Ethereum, costing $480 million.

Conclusion

This incident reveals the deep vulnerabilities in the infrastructure of the crypto market—exchanges serve both as trading venues and as the price-setting mechanism, leading to significant conflicts of interest. When pricing power is concentrated in the hands of a few platforms, and there is a lack of transparency and oversight, the potential for market manipulation greatly increases.

Whether it's a carefully planned attack or an unfortunate convergence of coincidences and system defects, the outcome is equally clear: the crypto market needs a more robust, transparent, and decentralized pricing mechanism; otherwise, similar events will only repeat.

Disclaimer: This article is for informational purposes only and does not constitute any investment advice. The crypto market is highly volatile, and investors should make decisions with caution.