After the October 10 market crash That saw massive losses in Bitcoin and other cryptocurrencies, nearly $1 billion in defi positions involving Athena’s staked USDE (SUSDE), according to a new report from Sentora Research.
Since the crash, Sentora said that rates in the defi markets have dropped significantly, shrinking yields on leveraged strategies such as the Susde loop trade. Susde is Athena’s staked USDE, a synthetic dollar stablecoin that generates yield by staking the underlying USDE token.
The loop
The popular approach involves 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 redeposited as collateral to borrow more USDT and buy more Susde.
This cycle is repeated to boost the yield generated by the positive carry – the difference between the Susde staking rewards and the borrowing costs.
Negative carry
However, since the October 10 crash, the yield differential has flipped negative, fueling the appeal of the stock trade.
“Following the flash crash on October 10, funding rates in def markets fell significantly, cutting yields for basis – trading strategies. ~2.0% / ~1.5% Above the Susde yield, which turned negative for users who borrowed stables from Lever Susde,” Sentora Research said in an email to Coindesk.
The firm explained that, while the spread remains below zero, looped positions that borrowed stablecoins to buy Susde are starting to incur losses. If this continues, it could trigger the aversion of approximately $1 billion in positions exposed to negative carry in a V3 core.
This negative carry can force sales of collateral or deleveraging, weakening liquidity in the very areas that provide leverage and potentially causing a cascading market effect.
What’s Next?
Sentora said traders need to watch for the spread between the annual percentage yield (APY) and the Susde yield, especially if it stays below zero.
Utilization rates in the USDT and USDC lending pools, where spikes in borrowing costs can accelerate stress. Sentora writes that there is an increasing number of looped positions close to liquidation, especially those within 5% of forced closure.
Moving forward, traders need to keep an eye on the spike in utilization rates in the USDT and USDC lending pools, which could raise borrowing costs and increase stress amid the negative spread between the annual percentage yield and the Susde yield.
