OKX Founder and CEO Star Xu: USDe Leveraged Cycle is a Major Reason for the 1011 Liquidation
Star Xu, founder and CEO of OKX, pointed out in the New Era Finance Podcast that Binance's promotion of USDe, issued by Ethena, as a stablecoin has issues. USDe is essentially a "tokenized hedge fund," and even with a delta-neutral strategy, it does not equate to zero risk or low risk.
He stated that Binance previously launched a user acquisition campaign offering about 12% annualized returns and allowed users to use USDe as collateral on par with USDT and USDC, lacking effective limits. Users were encouraged to exchange USDT or USDC for USDe to earn returns, then use USDe as collateral to borrow USDT, and then exchange back to USDe, creating a leveraged cycle.
This cycle pushed the apparent annualized returns up to 24%, 36%, or even over 70%, widely viewed as low risk due to being offered by a large platform; Xu believes this structure rapidly accumulates systemic risk, causing USDe to quickly decouple from the Binance order book under volatility shocks, triggering a chain liquidation.
He further pointed out that during the event on October 10, 2025 (1011), hundreds of billions of dollars in positions were liquidated, fundamentally changing the market microstructure, with some participants believing the damage exceeded that of the FTX collapse; weak risk control of assets like WETH and BNSOL further amplified the shock, with some tokens temporarily nearing zero price.
Xu emphasized that BTC prices began to drop about 30 minutes before USDe decoupled, indicating that the initial shock was a market event, but the USDe leveraged cycle amplified what could have been a stable correction into a chain liquidation; he called this a serious risk control failure, not merely an accident.
This arrangement caused yield-seeking funds to flow from traditional stablecoins into USDe leveraged positions, with the decoupling driven by events and forced liquidations leading to liquidity withdrawal and price spiral declines; the platform benefited from user acquisition and trading volume in the short term, while users holding leveraged positions, customers from other exchanges, and overall market depth faced pressure, exposing the vulnerabilities of the liquidation engine and collateral valuation mechanism.
Binance and some market participants (such as Haseeb Qureshi from Dragonfly) hold different views, believing the main drivers were macro shocks and overall high leverage, with USDe decoupling being more of a result than a root cause, mainly occurring within Binance.
Source: Public Information
ABAB AI Insight
Since founding OKX in 2013, Star Xu has repeatedly emphasized the need for exchanges to prioritize market stability and transparency, and has continued to point out the risks of synthetic stablecoins being used as cash collateral after the October 2025 incident; he has previously described USDe as a hedge fund structure distinct from low-risk tokenized currency funds like BlackRock BUIDL.
In terms of capital flow, Binance guided users to convert USDT/USDC into USDe and cycle collateral through a 12% yield activity, expanding the platform's USDe-related trading and lending scale; the motivation was to acquire users and enhance apparent yields while incorporating higher-risk products into the collateral system under stablecoin treatment, synchronizing the leverage of platform counterparties and users.
Similar cases include the cross-market chain liquidation triggered by the UST/LUNA decoupling in 2022, and previous forced liquidations of various synthetic assets due to collateral valuation and liquidity mismatches during extreme volatility; currently, exchanges are in a phase of integrating yield-generating synthetic assets into mainstream collateral frameworks, with regulation and internal risk control not yet fully aligned.
Essentially, this involves a transfer of pricing power and risk mismatch: platforms alter users' pricing of risk through collateral rules and yield marketing, transferring the tail risk of delta-neutral strategies to leveraged positions, and when the order book decouples, the liquidation engine forcibly liquidates at internal prices, amplifying localized price deviations into a full market liquidity shock.
ABAB News · Law of Cognition
Treating hedge fund products as cash collateral packages risk as yield
The returns from leveraged cycles are visible, while liquidations during decoupling are systemic
Platform user acquisition activities often transform individual risks into market structural risks