USDe Outlasted the End of Its Incentives. It Shrank US$214.95 Million When Crypto Sold Off.

USDe, Ethena's synthetic dollar, did not shrink when its token incentives ended. Ethena said there would be zero token incentives for USDe from the end of September onward, and in the six days that followed, supply rose US$111.93 million to a US$4.98 billion peak at the October 6 close. The decline came later, in the days of a crypto selloff.

USDe is not built like the dollar tokens most readers know. USDC and USDT are backed by cash and short-term government debt held by their issuers. USDe is what Ethena calls a synthetic dollar, backed with crypto assets and corresponding short futures positions: the protocol holds crypto collateral and sells an equal amount of perpetual futures against it, so a fall in the collateral's price is offset by a gain on the short. Much of its income comes from the funding payments that traders holding long perpetual positions pay to those holding short ones, and it is passed to holders who stake USDe as sUSDe. Only approved market makers can mint or redeem USDe with Ethena directly; everyone else buys and sells it in the market. That design links USDe's return to the demand for leverage in crypto markets rather more closely than to interest rates, which makes a crypto selloff a direct test of it.

The prevailing view of incentive-driven stablecoins is that supply follows the rewards out the door. USDe's September growth fed that view: the token grew 20.5 percent in September while the rewards were still paying. October tested it: the drop arrived with the market selloff, a week after the incentive schedule ended.

Supply fell US$214.95 million in the four days after October 7

Bitcoin fell on October 7, and US spot bitcoin ETFs lost US$484.9 million that day, while forced liquidations ran overwhelmingly against long positions. USDe supply fell US$96.47 million on October 7 alone and kept falling for three more days, to US$4.76 billion at the October 10 close. The four-day decline was US$214.95 million, 4.32 percent.

The exit was broad. The decline came through 153 redemptions from 30 addresses, and no single address accounted for more than about a quarter of the USDe redeemed. New issuance slowed at the same time: 34 mints over the four days, against 61 in the six days before.

Other dollar tokens on Ethereum moved far less. USDC fell 1.30 percent over the same four days, circulating USDT 0.56 percent, excluding the tokens in Tether's treasury wallet, and USDS 0.28 percent. Measured from the September 30 close to the October 14 close, USDe (−2.18 percent) and USDC (−2.29 percent) ended in roughly the same place; the difference is that USDe gained first and then lost it in four days.

Funding fell; the staked yield held

Much of USDe's income is the funding that traders holding long perpetual positions pay, passed through to those who stake it as sUSDe. That funding fell sharply in the selloff. On Binance, the largest perpetual venue, annualized funding on the bitcoin contract dropped from 3.47 percent over October 1–6 to 1.05 percent over October 7–10, and on the ether contract from 4.47 percent to 0.95 percent, with 10 of the 24 eight-hour funding payments negative. On OKX, ether funding averaged −0.27 percent. Deribit's bitcoin perpetual was the exception, rising from 3.32 percent to 4.89 percent. The yield paid to staked USDe did not follow over those four days: implied by the sUSDe exchange rate, it was 5.01 percent annualized from September 30 to October 6 and 4.94 percent from October 6 to October 10.

Staked USDe barely moved. The USDe held by sUSDe fell US$24.24 million over the four days, about 11 percent of the decline; the rest came from USDe that was not earning the staking yield, which makes up about 74 percent of supply. The share of supply staked ended the period at 25.47 percent, against 25.92 percent at the September 30 close.

Why it matters: USDe moved with the market, not with the rewards

USDe is a US$4.76 billion dollar token backed by a hedged crypto position rather than by cash or Treasury bills. The October sequence separates two forces that had moved together in September. Removing the incentives did not drain it; the decline arrived in a risk-off week, and it fell more heavily on unstaked USDe than its share of supply. The redeemers are not identified, so the motive is not known, but the timing suggests USDe's supply tracks conditions inside crypto trading venues more closely than what Ethena pays.

It also changes what to watch. The incentive test has been passed for now; the funding test has not been run. In this selloff funding fell close to zero and turned negative on some contracts, but only for days, and the staked yield held. A drawdown deep enough to push funding negative for weeks would cut the staked yield itself, and the 25 percent of supply that stayed staked this time would face the decision the unstaked holders made in four days. Whether USDe grows back toward US$5 billion depends less on Ethena's incentive budget than on whether traders are willing to pay to stay long.