Ethena Labs' USDe Stablecoin: Everything You Need to Know
USDe is a new stablecoin introduced by the cryptocurrency project Ethena Labs. Launched in February 2024, it has reached a market capitalization of $400 million within just its first month.
The stablecoin USDe, backed by Ethereum, aims to be the first scalable, secure, and stable money storage solution, as per the team's statements.
The disadvantages and risks associated with USDe include:
In addition to offering high annual farming yields of up to 30%, Ethena also provides users with the potential for an airdrop for staking and using USDe. This overview covers how USDe works, how to purchase it, and what sets it apart from other stablecoins.
Ethena Labs Funding
The Ethena project has completed three public investment rounds, raising $20.5 million. Investors include Binance Labs, DragonFly Capital, Maelstrom, Delphi Capital, OKX Ventures, and Mirana Ventures, among others.
The last investment round closed on February 16, 2024, raising $16 million (with the project valued at $300 million). The funds will support both the stablecoin USDe and the development of Ethena's native token.
Ethena Funding Details. Source: Cryptorank.io
USDe Stablecoin Details
USDe is neither a centralized nor an algorithmic stablecoin. In its official documentation, the team describes their stablecoin as a "synthetic asset" and ensures that its operation is completely decentralized and public.
USDe is backed by ETH. To hedge against potential declines in the base cryptocurrency's value, USDe is also backed by futures contracts, including short positions on Ethereum or options.
This effectively means the stablecoin's reserves are guaranteed by opposite positions (spot long and derivative short), allowing the project to generate additional income from financing rates and the spread (the difference between buying and selling prices of an asset).
USDe users can:
- Use USDe as collateral like regular stablecoins (USDC, USDT);
- Earn a share of the company's profits;
- Engage in liquid staking with USDe (receiving it for staking stETH);
- Place the token in farming and other high-yield staking programs (up to 30%).
USDe User Opportunities. Source: ethena-labs.gitbook.io
Ethena aims to create a fully decentralized stablecoin, independent of traditional institutions, protected from censorship and potential devaluation. Through derivative contracts, the company plans to turn USDe into a "digital bond" offering stable payouts to users.
Advantages and Disadvantages of USDe
The primary advantages of the newly introduced stablecoin are as follows:
- Outstanding asset liquidity due to a surge in user interest and rapid growth in capitalization;
- High returns from farming and staking activities, with some trading pairs on the stablecoin’s website offering annual yields surpassing 80%;
- The straightforward opportunity to share in the company’s profits through delta-neutral Ethereum transactions, meaning hedging long spot positions with short derivatives;
- The potential for an airdrop awarded to early USDe adopters.
- High fees. As the stablecoin operates on the Ethereum blockchain, each transaction (whether minting, approving, or transferring coins to liquidity pools) costs over $40 as of this writing. For small-scale investments in USDe, the potential profit might not offset the transaction fees.
- The usual risks inherent to DeFi protocols, such as the potential for smart contract vulnerabilities or outright scams within the platform.
- Pronounced volatility. Should cryptocurrency prices exhibit extreme fluctuations, USDe users could face the liquidation of their collateralized assets.
- The inclusion of delta-neutral positions in USDe’s backing does not unequivocally ensure the stablecoin's value preservation. The liquidation risk of Ethena’s assets remains, even if it is considerably low. Moreover, initiating derivative transactions of such magnitude necessitates collaboration with centralized crypto exchanges. Ethena explicitly mentions in its documentation that some operations are facilitated through partnerships with CEXs.
- USDe’s yield is influenced by numerous factors, including financing rates, the number of users, trading volumes, and the spread on trading pairs, which means the annual percentage yields for staking and farming can fluctuate.
How to Buy USDe and Qualify for an Airdrop
To be eligible for an airdrop, one must buy USDe through the official website using another stablecoin in the "Buy" section.
Buying USDe in the "Buy" Section. Source: app.ethena.fi
Users accrue a minimum of 5 points daily for utilizing the service. The number of points can be increased by locking assets in the Liquidity section.
When users lock USDe into one of the smart contracts (referred to as Shards on the website), they cannot withdraw their assets for a specified period (typically between 7 to 10 days). More detailed information about the points system and the relative “weight” of each task can be found in the Shards section.
Criteria for Earning Additional Points Through the Use of USDe. Source: app.ethena.fi
The native token's listing and the Token Generation Event (TGE) are scheduled for May 2024, with the listing contingent upon the platform achieving a Total Value Locked (TVL) of $1 billion (the TVL is currently $550 million).
Final Words
USDe represents a compelling stablecoin proposition, aimed not only at generating stable profits for both the company and its users but also at solving the stablecoin trilemma. Users can currently earn through farming, staking, and participation in the future airdrop program.
