The Dollar That Pays You to Be Short

On October 10, 2025, a dollar fell to sixty-five cents. It did so on one exchange, Binance, for a short while, and then climbed back. CoinDesk reported that the coin was USDe, issued by Ethena Labs, and that it slipped amid more than $19 billion of liquidations in a day, which the outlet called the largest such event in crypto by dollar value. The trigger, it said, was a sell-off after President Trump announced an additional 100 percent tariff on China.

The founder of Ethena is Guy Young. His public record is thin on biography; CoinDesk’s year-end profile gives no age, schooling or earlier employer, and we have not supplied any. What it does say is that he is the founder and CEO who scaled Ethena from an idea into a protocol worth about $15 billion “in just two years,” and that he “admittedly” took inspiration from Arthur Hayes, a co-founder of the exchange BitMEX. That lineage is the whole product.

A dollar made of a bet

Most stablecoins hold cash or Treasury bills. USDe holds crypto. As CoinDesk describes it, it is a “synthetic dollar”: spot bitcoin and ether paired with an equal amount of short futures, so that a fall in the coin is offset by a gain on the short and the price stays at $1. This is a basis trade, an old hedge-fund staple, wrapped in a token. The same article reports that Young said, “We are proving that stablecoins can deliver both rewards and regulatory integrity.”

The reward comes from the short. When traders crowd into leveraged longs, they pay a periodic fee, the funding rate, to the people on the other side. Ethena sits on the other side, and the fee becomes the yield. CoinDesk put the yield on USDe at 5.5 percent in October. Young’s contribution, in the profile’s words, was to bring the ETH and BTC basis trade onchain through “a $1-denominated instrument” and to build a category the outlet calls “yieldcoins.” Nick Van Eck, a founder of the stablecoin protocol AUSD, told CoinDesk that Ethena “effectively kicked off a new era of crypto-native asset management, with yield being the main product.”

The trend Young is evidence of is that a generation raised on leveraged trading has turned its favorite behavior into infrastructure. Other chains and applications, CoinDesk says, now use Ethena’s machinery to launch dollars of their own, among them MegaETH, Sui and the Solana project Jupiter. A dollar that earns a return only because other people are gambling is a startling thing to build a financial system on, and an efficient one while the gambling continues.

The crash, and the argument about it

The weekend after the crash produced two headlines. The first said USDe lost its peg. The second, from the same outlet, said it did not. Both are defensible, which is the point.

On Binance USDe touched 65 cents. On Bybit it dipped to about 92 cents, and on the decentralized exchange Curve it stayed within 100 basis points of a dollar. CoinDesk’s account of the cause is mechanical. Binance’s USDe liquidity was in the tens of millions of dollars, against hundreds of millions on decentralized venues. Binance lacked the direct dealer relationships that let others mint and redeem the coin, so market makers could not arbitrage the gap. And its price feed read USDe from its own thin order book, which set off liquidations that spread through its collateral system. Young, on X, called the discrepancy isolated to a single venue. Ethena said minting and redemption stayed operational throughout and that USDe remained overcollateralized, by about $66 million, according to CoinDesk, which says four independent attestors confirmed it.

The less comfortable number is the supply. Young said USDe fell from about $9 billion to $6 billion almost instantly, with redemptions processed without unwinding the hedges. That is the system working as designed. It is also a third of the coin, gone in a flash, which is what a run looks like when it succeeds in being orderly. Ethena’s governance token, ENA, fell as much as 40 percent during the slide, CoinDesk reported, and Binance said it was reviewing affected accounts and considering “appropriate compensation measures.”

What the yield depends on

The structural risk is stated in Ethena’s own documentation. Funding risk, it says, is that Ethena “is able to earn revenue from funding, but could also be required to pay funding.” The company calls negative funding “a feature, rather than a bug,” and says it is mean-reverting: by its figures, 17.5 percent of days saw negative annualized funding for ETH perpetuals and 15.9 percent for BTC, the longest negative streak ran 13 days, and a reserve fund is meant to cover shortfalls. These are the issuer’s numbers about its own risk, drawn from a historical window, and a window is not a guarantee.

The crash tested the second-order structure as well. Sentora Research, cited by CoinDesk, estimated that nearly $1 billion of loop trades were at risk. In a loop, a trader deposits staked USDe as collateral, borrows stablecoins, buys more and repeats. Sentora found that after funding fell, borrowing rates on Aave sat roughly 2.0 and 1.5 percentage points above the sUSDe yield for USDT and USDC respectively, turning the carry negative and creating the possibility of forced unwinds.

There is also luck. Ethena grew in a period when funding was generous enough to pay holders. Under the GENIUS Act, CoinDesk notes, issuers may not pay interest, which is why Anchorage built a separate rewards structure for Ethena’s tokens. A regulatory ceiling and a funding floor are two doors, and the product needs both to stay open.

What Young has built is real: a large, working market in a coin whose yield is a side effect of other people’s leverage. What it has yet to demonstrate is a bear market of the slow kind, when the crowd stops paying to be long.

Not financial advice.