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HomeCryptoWhat is USDe? Overview of Ethena Labs' "synthetic dollar".

What is USDe? Overview of Ethena Labs’ “synthetic dollar”.

Since their inception, stablecoins have provided a price-stable asset in the highly volatile cryptocurrency market. In the growing decentralized finance (DeFi) market, stablecoins are mainly used in trading, lending, and yield farming. Now, a new synthetic dollar called Ethena (USDe) has been launched to provide another tool for DeFi users.

What is USDe?

USDe is a “synthetic dollar” created by Ethena Labs, aiming to provide a stable, scalable, and censorship-resistant solution for the digital asset market. It also aims to generate yield from ETH staking and derivative delta hedging positions.

USDe operates on Ethereum and is fully supported on-chain, and can be freely integrated on other protocols. This solution was launched on mainnet on February 19, 2024.

Although USDe is classified as a stablecoin, the team behind its creation, Ethena Labs, avoids calling it a stablecoin, instead calling it a “synthetic dollar.”

USDe was created with the help of the Ethena protocol, built on Ethereum. USDe has an unlimited supply with a current circulating supply of 500,728,124 tokens, according to data on CoinMarketCap.

Ethena Labs asserts that USDe is the first censorship-resistant, stable, and scalable stablecoin.

How does USDe solve the stablecoin trilemma problem?

Decentralized, capital-efficient, and price-stable stablecoins are essential for the continued success of the DeFi ecosystem.

This is where USDe comes in.

It is designed to address three key aspects where other stablecoins struggle.

Decentralization: Ensure all collateral used to support USDe is held by institutional-grade providers, and no collateral is deposited with any exchange.

Capital efficiency: Using a delta-hedging mechanism, USDe can scale with capital efficiency without being completely dependent on collateral.

Stable: Use a delta-neutral strategy to ensure USDe stability, helping to keep the value of the portfolio stable in USD value.

Where does USDe’s high yield come from?

Besides solving the stablecoin trilemma problem, USDe also promises high yields.

Following its mainnet launch on February 19, the token promised users an annual percentage yield (APY) of 27.6%, raising questions in the crypto community about its origins. of this high yield.

The company says it is able to offer high yields thanks to a combination of returns from ETH staking and returns from delta hedging positions of derivatives.

Benefits and drawbacks of USDe

Like all innovations in the cryptocurrency sector, the USDe token has its benefits and drawbacks.

Benefit:

Solving the stablecoin trilemma problem: USDe was created to be capital efficient, remain decentralized, and achieve price stability.

Price stability: As a stablecoin, USDe is less volatile than regular cryptocurrencies and can be used for everyday transactions and investments.

Pay interest: USDe pays yield to holders, allowing them to earn investment income from their synthetic dollar holdings.

Limit:

Risks: Includes financing, liquidation and collateral risks. For example, funding risk makes USDe dependent on ETH price. When the price of ETH drops due to market sentiment, the funding rate for ETH short positions can become negative and reduce the total value.

Is USDe really a stablecoin?

The simple answer is no. Although USDe was initially marketed as a stablecoin by Ethena Labs, as of October 2023, the company stopped marketing it as a stablecoin. Instead, they call USDe a synthetic dollar collateralized by short-term futures positions and crypto collateral.

While USDe is an innovation that could solve the stablecoin trilemma problem, it is not without limitations, with the main one being negative funding rates. However, it remains a notable crypto asset.

Thach Sanh

According to Unchained Crypto

Mark Tyson
Mark Tyson
Freelance News Writer. Always interested in the way in which technology can change people's lives, and that is why I also advise individuals and companies when it comes to adopting all the advances in Apple devices and services.
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