Author: imToken

The stablecoin market has not been peaceful in the past month.

From xUSD to USDX, then to deUSD, and the bad debt transmission from protocols like Euler, Stream, Compound, and Aave, the world of stablecoins and the entire on-chain protocol are undergoing a systemic stress test.

The core issue behind this points directly to the potential risks exposed in the stablecoin mechanisms, which, to some extent, confirms the essence that "stablecoins are not inherently stable, but maintain a fragile balance under different mechanisms." This article will explore this wave of "de-pegging" and the important warnings it provides from multiple perspectives of the Web3 ecosystem and TradFi.

1. Stablecoins Under Siege: Continuous Growth, Continuous Risk Exposure

As one of the "holy grails" sought in the crypto world, stablecoins have always been the most imaginative track in the crypto market.

Especially after the DeFi Summer of 2020, due to the surge in DeFi native scenarios, a large amount of real demand (collateral, strategies, lending, yield pools) has made stablecoins a key infrastructure for on-chain asset-liability expansion. The mechanisms have also become increasingly diverse, from the initial over-collateralized types (DAI) to the algorithmic stablecoins that collapsed (UST), and now to the increasingly complex structured financial products like Delta-neutral mechanisms (USDe, XUSD), among others.

After years of expansion, CoinGecko data shows that as of November 14, the total circulation of stablecoins across the network has exceeded $300 billion, with USDT leading at $183.9 billion and USDC in second place at $75.7 billion. The combined total of the two is nearly $260 billion, still holding an absolute advantage.

Source: CoinGecko

To be pragmatic, the current market value of stablecoins exceeding $300 billion, combined with their still rapidly growing pace, the enormous demand for collateral and the impact on traditional finance and payment systems undoubtedly cannot escape the inevitable scrutiny of regulation, especially as stablecoins gradually penetrate various scenarios such as global payments, DeFi, and safe-haven storage. In fact, they are no longer a concept that can be defined by a single narrative:

They can be the main tool for cross-border transfers, the core component of on-chain yields, a wealth management tool providing returns on-chain, or collateral assets in DeFi protocols.

From a more macro perspective, they even begin to take on the roles of "digital deposits" and "on-chain settlement units," which means their use cases vary from person to person and arise from needs, with each mechanism seeking a difficult balance between decentralization, capital utilization efficiency, and credit backing, leading to vastly different risk profiles for different stablecoins.

In other words, "stablecoins" have essentially become systemic financial intermediaries on-chain. Once they fail, the impact will be far broader than imagined, which is why events like xUSD, USDX, and deUSD have triggered widespread attention in the past month.

In this larger context, understanding stablecoin mechanisms, sources of risk, and regulatory perspectives is no longer just a simple industry event but has become a public issue that all stakeholders should promote.

2. From Algorithmic Stability to Delta Neutrality: The Myth of Decentralized Stablecoins

It can be said that based on the current situation, centralized stablecoins like USDT/USDC are still within the regulatory radar, while the development of various "mechanism innovations" in decentralized stablecoins has far exceeded the effective coverage of the current regulatory framework in terms of speed and complexity.

For example, recent cases of de-pegging among stablecoins are mostly concentrated in highly financialized designs like synthetic collateral and Delta neutrality, as these products, while pursuing capital efficiency and innovative returns, also bear more elastic non-linear risks.

When discussing the risks of de-pegging and the potential secondary disaster risks of innovative decentralized stablecoins, Terra/UST is undoubtedly an unavoidable topic. If the 20% annualized UST was once the most dangerous high-yield trap in the Web3 world, the protagonists of this wave of events are more complex "structured stablecoins."

The most representative examples are xUSD and USDX. The core mechanisms they employ often combine "Delta neutral strategy + liquidity pool + derivatives hedging." At first glance, this seems like a rational, professional, and highly financial engineering-driven mechanism.

But the reality is that whether algorithmic stability, synthetic stability, or Delta neutrality, the core risk points to the same issue: complex mechanisms can obscure real risks. Objectively speaking, the stablecoin generation/stabilization mechanism of USDe is distinctly different from Terra's approach and does not belong to the same category. On the contrary, since it is harvesting all traders who went long in a bull market and paid funding costs for it, the high yield is supported, which is the biggest difference from Terra.

What is noteworthy is actually the latter half of Ethena, which means that once it encounters a de-pegging test, it could indeed follow a negative spiral self-destructive path similar to LUNA/USDe, leading to the possibility of a bank run and accelerated collapse—funding rates continuously turning negative and widening, market FUD discussions emerging, USDe yields plummeting + de-pegging discounts, leading to a market cap crash (user redemptions):

For instance, a drop from $10 billion to $5 billion would require Ethena to close short positions and redeem collateral (such as ETH or BTC). If any issues arise during the redemption process (liquidity issues due to extreme market conditions, significant market fluctuations, etc.), the peg of USDe would further be affected.

Source: CoinMarketCap

This is precisely one of the core factors exposed by the recent USDX risk event. Although the October 11 incident was a CEX issue and the on-chain price was not directly affected, if the positions of Delta-neutral stablecoins like USDX are primarily on large CEXs, they could be indirectly impacted:

• Transmission of underlying asset losses: If the underlying assets on the CEX side incur losses for any reason (including pricing issues, security incidents, or liquidation system failures), it could theoretically affect the value of the short positions or the liquidation capacity of the collateral used by the stablecoin issuer for hedging;
• Liquidation chain: This could also lead to delays or wear in the liquidation process when the issuer redeems the stablecoin, ultimately causing the stablecoin to de-peg on-chain;

Objectively speaking, whether it is USDe or USDX, these so-called stablecoin products centered around the "Delta neutral" mechanism are essentially more akin to structured financial products. They require a more detailed regulatory framework and transparent disclosure requirements, as well as the need to bear more elastic risk reserves.

In simple terms, regardless of how the underlying mechanisms change, all stablecoins should meet the same fundamental requirements regarding transparency disclosure, underlying asset support, and custody mechanisms. They cannot use so-called "mechanism innovation" as an excuse to evade regulation and risk disclosure.

3. Prudent Reflections Behind the Evolution of Stablecoins

Zooming out to a macro perspective, the stablecoin track has always been a lucrative super cake, and its profit model and potential scale pose a direct challenge to traditional finance (TradFi), which is the core reason for regulatory intervention:

According to Tether's Q2 2025 attestation report, Tether's total holdings of U.S. Treasury bonds exceed $127 billion (an increase of about $8 billion from the first quarter), with a net profit of approximately $4.9 billion in the second quarter, and the total net profit for the first half of this year reached $5.7 billion.

It is worth noting that Tether has only about 100 employees, and its profit margin and operational efficiency are astonishingly high, nearly at least an order of magnitude lower than crypto trading platforms and traditional Web2 financial giants!

This unrestrained financial power and super monopoly profits will inevitably trigger regulatory concerns about systemic risk transmission and financial sovereignty. Moreover, at the ordinary user level, stablecoins are also becoming a popular wealth management tool that siphons off traditional financial users:

Regardless of your familiarity with Web3, you have likely come across similar promotions recently, such as "USDC offers a 12% annualized yield on demand deposits." This is not just a gimmick; although it is merely a short-term activity subsidized by Circle, it reflects how the logic of making money on-chain is penetrating broader wealth management scenarios.

Objectively speaking, this is a trend that is taking shape between "Web2 & Web3." However, the significant simplification of user experience does not mean a significant reduction in risk.

On the contrary, when ordinary users purchase DeFi structured products that lack the protection of the "Deposit Insurance Regulations," have complex underlying mechanisms, and may face liquidation wear at any time, the misalignment of risk reaches its peak.

There is nothing new under the sun.

Whether it is LUNA/UST, USDe, or xUSD, USDX, the development of stablecoins has long moved from "technological innovation" to "financial structural challenges." In their pursuit of efficiency and decentralization, they continuously expose the fragility of their mechanisms.

Essentially, stablecoins are not inherently safe; their safety is determined by their mechanisms, collateral, transparency, and governance.

The de-pegging events of xUSD and USDX are just the latest reminders that under the enormous temptation of profit and the complexity of mechanisms, users need to remain vigilant: any digital financial tool that promises "high returns, zero risk" deserves our most prudent and skeptical examination of its underlying structure and risk boundaries.

Only when innovation can be integrated with responsible transparency and an increasingly tightening global regulatory framework can stablecoins truly achieve a sustainable future.

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