DeFi traders are confronting significant losses as nearly $1 billion in leveraged loop positions involving Ethena's staked USDe (sUSDe) approach liquidation thresholds due to negative yield spreads. This situation emerged after the October 10 market crash, which caused borrowing rates on platforms like Aave to spike above the staking yields from sUSDe.
According to Sentora Research, borrow rates on Aave v3 Core have risen to approximately 2.0% for USDT and 1.5% for USDC, while sUSDe staking yields remain lower, resulting in a negative carry of up to 2%. This means the cost of borrowing now outweighs the returns from staking, forcing traders into ongoing losses.
Many of these looped positions are within 5% of liquidation thresholds, raising alarms about potential forced asset sales. Sentora warned, "As the spread remains below zero, looped positions that borrow stablecoins to buy sUSDe start to incur losses." A broad unwinding of these positions could exceed $1 billion in exposure, potentially reducing liquidity and increasing volatility across DeFi markets.
Utilization spikes in USDT and USDC lending pools are driving borrowing costs higher, and if this trend continues, it could accelerate stress on leveraged strategies. Traders are advised to monitor the yield spread closely, as sustained negative conditions may lead to further deleveraging and systemic risks in DeFi protocols.
