After xUSD, it seems the USDX pool also took action.

Author: Eric, Foresight News

The reason behind the collapse of Stream Finance, the issuer of xUSD, was finally clarified yesterday. Delta neutral strategies, in extreme market conditions, suffered losses on collateral due to ADL (Auto-Decay Loss). The risks associated with entrusting funds to third parties for off-chain operations and employing cyclical leverage strategies accumulated and exploded when third-party losses approached nearly $100 million, ultimately rendering the platform insolvent.

In a 2023 article I translated, Columbia Business School professor Austin Campbell pointed out that Ethena’s USDe is not a stablecoin but rather a share of Ethena’s structured financial products.

The de-pegging of xUSD has also impacted many DeFi strategies based on this so-called “stablecoin” and some lending positions collateralized with xUSD. Strategies that aimed to keep collateral value stable or even gradually appreciate through delta-neutral approaches were disrupted amid market extremities and opacity issues.

More concerning is the possibility that the xUSD incident might not be the end of this story.

All USDX that could be borrowed have been borrowed out

Yesterday evening, a user named 0xLoki tweeted that they were just a day away from redeeming the stablecoins used to mint sUSDX, but an address ignored the over 30% annualized interest rate and drained all pools on Euler that used USDX and sUSDX as collateral to borrow other stablecoins.

For those unfamiliar with USDX, here’s a brief overview: USDX is a stablecoin issued by usdx.money. The project announced it completed a $45 million funding round at a $275 million valuation last year. Its issuance model is nearly identical to Ethena’s, employing a delta-neutral strategy. Users staking USDX can also earn yields from short funding rates. Unlike Ethena, usdx.money not only operates with Bitcoin and Ethereum but also allows strategies involving some altcoins, which amplifies potential gains but also increases risks.

According to my research, Euler’s platform data from last night shows that the only platform supporting USDX and sUSDX as collateral for lending—Re7 Labs Cluster—has fully borrowed out all assets including USDT, YUSD, USD1, WBNB, and BTCB.

Similarly, pools on Lista DAO that allow borrowing USDT and USD1 with USDX and sUSDX collateral have been drained. The borrowing rate for sUSDX-backed USDT loans was over 800% at the time of writing. If borrowers choose not to repay, the rate will continue to skyrocket until forced liquidation.

Additionally, 0xLoki mentioned that Morpho and Silo also have corresponding lending pools, but as of this report, I couldn’t find current data—possibly the pools have been removed from the front end. The fact remains that nearly all assets that could be borrowed against USDX and sUSDX are now exhausted. Similar to xUSD, the markets for USDX assets are built by Re7 Capital and MEV Capital. Some users on X reported that Re7 Capital staff mentioned in Discord that they are discussing how to handle the situation with Stables Labs, but no clear resolution has been announced.

( Who is “borrowing” like crazy?

A user named Arabe ₿luechip noticed irregularities early yesterday morning and listed four addresses that have exhausted available borrowing funds across various markets.

One address starting with 0x50de has been receiving USDT transferred from an address starting with 0x246a since late July and sending it to Binance. Since late October, it has been receiving large amounts of USDX from 0x5bdf addresses and other sources of sUSDX, then rapidly borrowing stablecoins like USDT, USDC, USD1 from Euler, Lista DAO, and Silo, and almost immediately transferring the borrowed assets to Binance.

Once borrowing capacity was exhausted, this address swapped USDX for USDT on PancakeSwap and transferred the funds to exchanges—this process only concluded about 11 hours ago.

Another address starting with 0x5bdf also engaged in large-scale collateralized borrowing of USDX to lend USDT and USD1 on Euler and Lista DAO, but currently holds no borrowed stablecoins.

The remaining two addresses, despite holding significant USDX or sUSDX and having engaged in some borrowing activity in September and June, are less likely related to this incident.

The most suspicious address starting with 0x50de has been flagged by Arkham as potentially linked to Flex Yang, the former founder of Babel Finance and HOPE. The key evidence is that the address starting with 0x246a, directly associated with Flex Yang, transferred USDT to 0x50de twice four months ago—marking the start of continuous borrowing and transfers to exchanges.

Additionally, LinkedIn indicates that Flex Yang is the founder of Stables Labs, the company behind usdx.money.

Addresses directly linked to the founder are ignoring high borrowing rates, repeatedly borrowing stablecoins, and transferring the proceeds to exchanges after trading USDX for USDT on PancakeSwap. These suspicious activities have raised alarms among users. Some speculate that USDX may have also experienced collateral shortfalls during the “October 11 crash,” possibly due to ADL or other reasons.

Although the multisig address of Stables Labs removed nearly $20 million in liquidity from PancakeSwap’s stablecoin pools two days ago and added about $10 million later, the pools now show significant liquidity shifts—likely related to the multiple transactions from the address starting with 0x50de since yesterday afternoon.

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) Decentralized stablecoins urgently need transparency

According to the official website of usdx.money, as of 9 a.m. today, they still hold over $680 million in reserves, mostly on Binance.

However, due to the opacity of centralized exchanges, users are questioning the accuracy of this asset report given recent operations. While we lack concrete evidence of what exactly happened, it’s clear that some issues have arisen, prompting an address linked to the founder to attempt an escape. Meanwhile, there’s no news yet on Stables Labs’ plan involving US Treasury-backed USD0x.

Stablecoins that promote delta-neutral strategies, starting with Ethena, have become highly sought after. But because they require substantial contract liquidity, many projects prefer centralized exchanges, turning the collateral backing these so-called “stablecoins” into a black box—no one outside the project truly knows the real situation. Without regular third-party audits, large-scale projects facing issues could trigger a butterfly effect across DeFi.

Beyond transparency, the nested structures among DeFi protocols are increasingly complex. Many structured products are so intricate that they’re hard to untangle. For example, crvUSD can be used as collateral to issue a stablecoin also called crvUSD, which is essentially a leverage issue. Similar cases reveal ongoing DeFi risk management problems.

The 2022 bear market caused many high-leverage centralized lending institutions to go bankrupt, but at least their liabilities are clear in the books. Today, DeFi faces a serious problem: even with all information on-chain, it’s difficult to determine how many layers of leverage are stacked on a basic underlying asset.

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Returning to the issue of USDe-style stablecoins, user Mingdao even suggested that this model might have already been discredited. After over five years of development, it seems we need to reassess how DeFi can improve—at a significant cost.