Ethena Labs announced the launch date for its synthetic stablecoin USDe on December 16, 2024, as the token’s market capitalization reached $5.73 billion, an all-time high.
In an article on X, Ethena Labs, built on the Ethereum blockchain, announced the possible launch of its USDe stablecoin, pegged to the US dollar. It is primarily constructed as a yield-generating asset rather than an intermediary for a transaction, similar to Tether (USDT) or USD Coin (USDC).
Unlike traditional stablecoins backed by fiat reserves, USDe derives its yield based on Ethereum (ETH) staking rewards and keeps that reward separate from ETH’s short-term funding rate. In doing so, it offers its holder an attractive annual percentage yield of up to 29%. This dual-tier return model makes USDe a highly profitable financial instrument in the field of decentralized finance.
Users quickly flocked to USDe, making it the third-largest USD-pegged stablecoin, surpassing DAI’s $4.7 billion market cap, but it remains behind USDT and USDC , which have a market capitalization of $135 billion and $40 billion, respectively. According to CoinMarketCap, USDe trading volume increased by 24.27% over the past 24 hours to $171.09 million, indicating strong demand for yield-producing assets.
How sustainable is the USDe stablecoin model?
Ethena’s USDe has been compared to Terra-Luna, whose value also collapsed in 2022 due to its unsustainable growth model, by critics. Terra’s collapse has been attributed to its difficulties maintaining its peg with the US dollar in a bear market, and experts fear that USDe could suffer the same fate.
USDe uses a delta neutral trading strategy, which balances long and short positions of Bitcoin (BTC) and ETH to maintain its stability and yield. Ethena hedges long stETH positions on centralized exchanges. In the event that a CEX falls, the hedge may remain there; Ethena’s positions are open to unrealized profits and losses. In a bull market, since the funding rate remains positive, this technique will work well; However, in bear markets, once the funding rate becomes negative, the yield may decline.
“So even if things are good now because the market is positive and short funding rates are positive, eventually it turns around, the funding goes negative, the margin/collateral is liquidated and you have an unsecured asset. guaranteed. The opposite is the “law of large numbers”, which is pretty much the same as UST’s billion-dollar BTC fund, etc. It works until it doesn’t work anymore.“.
by André Cronje
Andre Cronje, CTO of the Fantom Foundation, for example, pointed out that the USDe model could only hold up in bullish market conditions and that its resilience in a bear market was unproven, drawing parallels with the collapse of Terra-Luna. Second, given the increasing efficiency of the crypto market, profit margins, known as basis spreads, could narrow, reducing the profitability of USDe’s high returns in the long term.
