What Is Ethena and How Does the Stablecoin USDe Work?
Stablecoins have long been playing an integral role in the crypto market, offering much-needed price stability for digital asset users without relying on the fiat infrastructure. However, most existing stablecoins face challenges: ranging from centralisation and censorship to limited scalability and stability, limiting their true potential.
Ethena aims to address the above challenges with USDe, a synthetic stablecoin solution that combines scalability, stability, and censorship resistance.
What Are Ethena and USDe?
Ethena is an Ethereum-based synthetic dollar protocol that issues the USDe stablecoin. In the form of an "Internet Bond," the platform offers users access to a crypto-native solution for money that doesn't rely on the traditional banking system infrastructure and acts as a globally accessible dollar-denominated rewards instrument.
USDe is Ethena's synthetic dollar stablecoin that takes a unique approach to price stability and collateralisation. Instead of physical cash reserves, crypto reserves, or algorithms, USDe relies on the use of delta hedging derivatives positions against protocol-held collateral. This enables the synthetic stablecoin to maintain a relatively stable value relative to the value of spot cryptocurrencies and futures positions.
USD-e's backing inherently creates protocol-level revenue. As a result, by staking the synthetic stablecoin, holders can mint sUSDe to accumulate yield.
Is Ethena's USDe a Stablecoin?
Technically, USDe is a stablecoin that uses a different approach to price stability and collateralisation than existing stablecoins. Enabled by hedging the delta of spot assets backing the token during minting, Ethena's synthetic dollar offers multiple benefits to users:
Stability: Price stability can be achieved by hedging the transferred collateral assets—crypto (e.g., a liquid staking token like stETH) and corresponding short futures positions— immediately on issuance. This reinforces the synthetic USD value that backs USDe.
Scalability: USDe can scale with capital efficiency through the use of derivatives. The synthetic dollar only needs 1:1 collateralisation because the backing assets can be fully hedged with an equivalent short position. This comes in great contrast to the over-collateralisation of multiple decentralised stablecoins, which hinders capital efficiency.
Censorship-Resistance: Censorship resistance is ensured by keeping backing assets outside the banking system, stored on-chain in transparent, trustless, auditable, and programmatic custody accounts. This contrasts stablecoins like USD Coin (USDC) or Tether USD (USDT), which maintain physical reserves to achieve price stability.
USDe Coin: Total Supply, Market Cap, Trading Volume
As of February 19, 2025, USDe has a total supply of $6.07 billion, which is the same as the synthetic dollar stablecoin's market cap. Currently, that makes it the fourth-largest stablecoin by market capitalisation, surpassing even DAI. In the last 24 hours, USDe had a trading volume of $81.10 million.
How Does Ethena Yield Work?
By staking USDe, you can earn a yield on your synthetic dollar holdings. Doing so mints you sUSDe, which represents the staked version of the stablecoin. By holding sUSDe in your wallet, you continue to earn yield on your holdings until you unstake your assets.
sUSDe is a non-rebasing token, meaning that your coin balance won't increase with the earned yield in your wallet. Instead, sUSDe accumulates rewards within the staking contract, leading to a rise in the value of the staked version of the stablecoin over time. As a result, you can cash out your yield by unstaking or exchanging sUSDe for more USDe than your original deposit.
For example, suppose you have deposited 1,000 USDe into Ethena's contracts to stake the stablecoin, minting 1,000 sUSDe. If sUSDe offers a 20% APY, holding it for 365 days will increase the sUSDe/USDe exchange rate from the initial 1.0 to 1.20. So, when you unstake your sUSDe, you will receive 20% more USDe (1,200 USDe) than your original deposit (1,000 USDe).
Ethena's USDe: A Decentralised, Scalable, and Stable Synthetic Dollar Solution
Ethena's USDe addresses many of the existing challenges of stablecoin with a decentralised, scalable, and censorship-resistant synthetic dollar solution that maintains price stability through delta hedging derivatives positions against protocol-held collateral.
At the same time, staking USDe allows holders to accumulate rewards through sUSDe, making it an attractive choice among those looking to generate passive income with high APYs.
Frequently Asked Questions
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It powers an Ethereum-based synthetic stablecoin protocol that issues USDe, providing a decentralized digital dollar used for transactions, rewards, and yield generation.
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Yes, Ethena's USDe is a synthetic stablecoin that maintains price stability through delta hedging derivatives, offering a scalable and censorship-resistant digital dollar solution.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate. VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
