DailySun
Ethena Labs has revealed that its synthetic USDe stablecoin will launch on December 16, 2024, coinciding with the token’s market capitalization hitting $5.73 billion, marking an all-time high.
In a message posted on X, Ethena Labs, which operates on the Ethereum blockchain, disclosed a potential launch for its USDe stablecoin, designed to be pegged to the U.S. dollar. This stablecoin is primarily intended as a yield-generating asset rather than a transactional intermediary, akin to Tether (USDT) or USD Coin (USDC).
Unlike traditional fiat-backed stablecoins, USDe generates its yield from the staking rewards of Ethereum (ETH), keeping this reward separate from Ethereum’s short funding rate. This strategy allows holders to enjoy an appealing annual percentage yield of up to 29%, making USDe a lucrative financial instrument within the decentralized finance sector.
The rapid adoption of USDe has positioned it as the third-largest USD-pegged stablecoin, surpassing DAI’s $4.7 billion market cap, although it still trails behind USDT and USDC, which have market caps of $135 billion and $40 billion, respectively. As reported by CoinMarketCap, the trading volume for USDe surged by 24.27% over the last 24 hours, reaching $171.09 million, signaling strong interest in yield-bearing assets.
How sustainable is the USDe stablecoin model?
Critics have drawn comparisons between Ethena’s USDe and Terra-Luna, which saw its value plummet in 2022 due to an unsustainable growth model, according to analysts. The downfall of Terra was linked to its failure to maintain its peg with the U.S. dollar during bearish market conditions, raising concerns that USDe may face a similar scenario.
To maintain stability and yield, USDe employs a delta-neutral trading strategy, which aligns long and short positions of Bitcoin (BTC) and ETH. Ethena mitigates the risks associated with long stETH positions on centralized exchanges. Should a CEX fail, individual hedges may remain, leaving Ethena vulnerable to both unrealized gains and losses. In bullish conditions, where funding rates are positive, this strategy is effective; however, during bear markets, if funding rates turn negative, yields could decline.
“So while things are going great now because the market is positive and shorting funding rates are positive, eventually that shifts, funding turns negative, margin/collateral can get liquidated, and you end up with an unbacked asset. The response to that is the “law of large numbers,” similar to UST’s $1bn BTC fund, which holds until it doesn’t“.
by Andre Cronje
Andre Cronje, Chief Technology Officer of Fantom Foundation, noted that the USDe model might only be viable during bullish markets, and its durability in bearish conditions remains untested, drawing a comparison to the downfall of Terra-Luna. Furthermore, with the increasing efficiency of the cryptocurrency market, the profit margins, referred to as the basis spread, could diminish, which may adversely affect the long-term profitability of USDe’s high returns.
