DeFi’s Fragile Foundation: USDX Crash Highlights Weaknesses in Synthetic Stablecoins

The

stablecoin, created by Stable Labs, has dropped sharply to $0.74 in its latest update, remaining well below its intended $1 peg. Since November 6, 2025, the token’s price has been in steep decline, hitting a low of $0.3736 within the day, which has caused alarm throughout decentralized finance (DeFi) circles and led to immediate governance interventions. The downfall, linked to the Balancer V2 Vault hack that siphoned off more than $100 million, has highlighted weaknesses in synthetic stablecoin frameworks and set off a series of liquidity problems, according to .

The loss of the peg was triggered by forced liquidations connected to Stable Labs’ hedged holdings in

and , which undermined its delta-neutral collateral approach. Blockchain records indicate that USDX’s asset mix had not been rebalanced for over two months, casting doubt on the project’s operational oversight, as noted by . At the same time, a wallet associated with Stable Labs founder Flex Yang was seen using USDX as collateral to exchange for other stablecoins such as and on platforms like and , further reducing liquidity, according to .

In reaction to the turmoil, initiated an urgent governance proposal (LIP 022) to authorize forced liquidations in USDX markets. Supported by 18 veLISTA token holders, the plan seeks to update oracle pricing and start liquidations to limit further losses, as detailed by . MEV Capital, a vault manager affected by the crisis, has already set allocation limits to zero and changed the interest rate structure for the USDT/sUSDX market. , a Binance-supported exchange, has urged users to reassess their exposure to USDX-related pools and to keep a close watch on developments (as reported by TradingView).

The situation draws parallels to the 2025 downfall of Stream Finance’s

stablecoin, which also lost its peg following a $93 million breach. Analysts caution that cross-collateralized DeFi models can heighten systemic vulnerabilities, recommending broader collateral diversification to avoid domino effects, according to . A large investor, 0xe454, recently spent $800,000 to acquire 933,241 USDX tokens during the depeg, speculating on a rebound despite ongoing redemption issues (Bitget report).

With the U.S. Dollar Index (DXY) climbing above 100 for the first time since August, broader economic pressures are adding to the uncertainty in crypto markets. Bitcoin, which often moves inversely to the dollar, is facing challenges as investor risk appetite declines, according to

. The dynamic between traditional and digital currencies highlights the delicate nature of DeFi systems, where synthetic stablecoins like USDX are central to liquidity and yield generation.