Bitcoin sees huge losses after market crash on October 10 Nearly $1 billion in DeFi positions tied to USDe (sUSDe) and other cryptocurrencies, including Athena, are now at risk, according to a new report from Centora Research.
Since the crash, Santora noted that rates in DeFi markets have dropped significantly, reducing yields on leveraged strategies like SUSD loop trades. sUSDE is Athena’s Stacked USDe, a synthetic dollar stablecoin that generates yield by staking the underlying USDe tokens.
the loop
Popular strategies include traders depositing SUSDE as collateral on DeFi platforms like Aave and Pendle to borrow stablecoins like Tether. and USD Coin (USDC). They then use the borrowed USDT to buy more sUSDe, which is then re-deposited as collateral to borrow additional USDT and buy even more sUSDe.
This cycle is repeated to increase the yield generated by positive carry – the difference between SUSDE staking rewards and borrowing costs.
negative carry
However, since the October 10 crash, the yield differential has turned negative, reducing the appeal of the loop trade.
“Following the flash crash on October 10, funding rates on DeFi markets have dropped significantly, cutting yields for base-trading strategies. On Aave v3 Core, USDT/USDC lending rates are stable ~2.0% / ~1.5% “Over the SUSDE yield, carry has turned negative for users borrowing stablecoins to leverage SUSDE,” Centora Research said in an email to CoinDesk.
The firm explained that, as the spread remains below zero, loop positions that borrowed stablecoins to buy SUSDE begin to suffer losses. If this continues, it could trigger a writedown of around $1 billion on a position already exposed to a negative impact on Aave v3 Core.
This negative carry could force collateral sales or deleveraging, weakening liquidity in venues that provide leverage and potentially causing a broader market impact.
What next?
Santora said traders need to keep an eye on the spread between Aave’s lending annual percentage yield (APY) and the SUSD yield, especially when it remains below zero.
Utilization rates in USDT and USDC debt pools, where rising borrowing costs could increase stress. Santora wrote that the number of looped positions near liquidation is increasing, especially those that are within 5% of being forced to close.
Going forward, traders need to keep a close eye on increases in utilization rates in the USDT and USDC lending pools, which could increase borrowing costs and increase the tension between the negative spread between Aave’s lending annual percentage yield and SUSDE yield.