Bitcoin Drop Puts Massive $1B in sUSDe Loop Positions Under Pressure, Report Finds

$1B in DeFi sUSDe Loop Trades Under Threat After October Crash, Sentora Research Warns

Nearly $1 billion worth of DeFi positions tied to Ethena’s staked USDe (sUSDe) could face liquidation pressure after the Oct. 10 crypto market crash, according to a report by Sentora Research.

The sharp downturn in bitcoin (BTC) and other major assets has driven a steep drop in DeFi funding rates, eroding yields on leveraged strategies that previously relied on positive carry — particularly the sUSDe looping trade.

Leveraged Loop Strategy Faces Pressure

The strategy involves depositing sUSDe as collateral on platforms like Aave and Pendle to borrow stablecoins such as Tether (USDT) and USD Coin (USDC). The borrowed assets are then used to purchase additional sUSDe, which is redeposited to repeat the cycle and amplify yield.

This approach worked as long as the staking yield on sUSDe exceeded borrowing costs. But after the October flash crash, that equation flipped.

“Following the Oct. 10 event, DeFi funding rates dropped sharply,” Sentora told CoinDesk. “Borrow rates for USDT and USDC on Aave v3 Core are now roughly 2% and 1.5% higher than sUSDe yields — turning the carry negative for leveraged users.”

Negative Carry Threatens $1B in Exposure

Sentora estimates that as the yield spread remains negative, looped positions borrowing stablecoins to buy sUSDe are now losing money. If the trend persists, up to $1 billion in leveraged positions could face forced unwinds or collateral liquidations on Aave v3 Core.

Such liquidations could weaken liquidity across major DeFi lending markets and trigger secondary deleveraging across protocols.

Rising Utilization Rates Add Stress

Utilization in USDT and USDC pools has climbed, pushing up borrowing costs even further and compounding the negative carry.

“A growing number of looped accounts are now within 5% of liquidation,” Sentora said. “A sustained increase in borrowing costs could accelerate unwinds and amplify market stress.”

Sentora advised traders to closely monitor the spread between Aave’s borrow APY and sUSDe yield, calling it the key indicator for potential systemic risk in leveraged DeFi positions.