Ethena USDe Experiences Explosive Growth, Aave Becomes the Primary Leverage Engine, Risk Team Alerts to Potential Liquidity Risks

However, this expansion is predicated on a sustained high funding rate. Once the market environment reverses, it may trigger large-scale deleveraging.

Aave’s risk modeling team, Chaos Labs, pointed out in a recently published report that when funding rates decline and USDe yields fall below the borrowing costs of USDC or USDT, the circular leverage will undergo a “reflexive” deconstruction. Such large-scale deleveraging activities will lead to approximately $1.3 billion in leveraged positions being forcibly liquidated, and USDe will also face a wave of selling pressure.