USDe's total value locked drops by 50% even as onchain activity remains strong, highlighting the vulnerability of DeFi yields

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Bitget-RWA2025/11/25 23:52

By:Bitget-RWA

- Ethena's USDe stablecoin TVL fell 50% to $7.6B amid yield compression and unwinding leveraged carry trades, despite rising onchain transaction volume. - The synthetic stablecoin's 5.1% APY now lags Aave's 5.4% USDC borrowing rates, triggering outflows as leverage strategies become unprofitable. - Collapsing 10x leverage loops and maturing perpetual tokens accelerated TVL decline, exposing fragility of yield-bearing stablecoins in risk-off markets. - Chaos Labs recommends lowering Aave V3 stablecoin borro

Due to shrinking yields, Ethena's

USDe

stablecoin has seen its total value locked (TVL) drop by half, even as onchain transaction activity has increased,

as highlighted in a recent report

. This synthetic stablecoin, which generates returns from perpetual futures funding rates, currently holds $7.6 billion in TVL—a sharp decline from $14.8 billion in October 2025—as leveraged carry trades unwind in a tighter market. The growing gap between TVL and usage points to the vulnerability of yield-focused stablecoins in decentralized finance (DeFi),

where capital movement is extremely responsive

to changes in risk sentiment and liquidity conditions.

USDe operates by keeping a 1:1 peg with the U.S. dollar, using crypto collateral and shorting perpetual futures to capture funding rate differentials as yield. Although the stablecoin currently provides a 5.1% APY—

a significant drop from the double-digit yields

seen earlier this year—its returns have been squeezed by lower funding rates and waning demand for leverage. The decline has picked up pace as borrowers on platforms like

Aave

are now charged 5.4% for

USDC

, which is higher than USDe’s APY and

has led to the closure of carry trades

that previously fueled TVL growth.

The unwinding of leveraged looping strategies—where users repeatedly deposited and borrowed to reach up to 10x leverage—has further accelerated outflows. Once a key driver of DeFi capital efficiency, these strategies lost their appeal as yields dipped below borrowing costs. Furthermore, the expiration of Ethena’s November perpetual tokens (PTs) has

injected liquidity back into the market

, further reducing the appetite for stablecoin leverage.

Even with the TVL drop, USDe continues to see strong onchain activity, with

more than $50 billion in transactions

over the past month. This indicates that the token still has practical demand, despite a decline in speculative use. Still, the broader DeFi sector is grappling with fundamental issues, as protocols find it difficult to maintain yield models in a risk-averse climate. Some projects have already ended stablecoin farming initiatives,

casting doubt on the sustainability

of yield-generating assets in the long run.

Chaos Labs, which manages risk for Aave V3, has

proposed reducing stablecoin borrowing rates

from 6.0% to 5.5% to better reflect current market conditions and help stabilize utilization rates. This move is intended to slow further TVL losses by making rates more competitive and attracting organic borrowing as liquidity from PT maturities returns to the system.

The story of USDe’s

evolution

illustrates the double-edged sword of DeFi innovation: mechanisms that drive rapid growth in bullish markets can also accelerate declines during downturns. As

yield compression changes capital dynamics

, stablecoin creators and DeFi platforms must carefully balance user incentives with overall system stability to prevent widespread liquidity risks.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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