Ethena Labs To Launch Synthetic USDe Stablecoin on Dec. 16

Ethena Labs announced the launch date of its synthetic USDe stablecoin on December 16, 2024; The market cap of the token reached an all-time high of $5.73 billion.

Built on the Ethereum blockchain, Ethena Labs announced a possible launch for its US dollar-pegged stablecoin USDe in a post on X. Similar to Tether (USDT) or USD Coin (USDC), it was created primarily as a return-generating asset rather than an intermediary for a transaction.

Ethena Labs announced USDe stablecoin on X.

Unlike traditional fiat reserve-backed stablecoins, USDe earns its return based on Ethereum’s staking rewards, keeping this reward away from ETH’s short funding rate. By doing this, it provides the owner with an attractive annual return percentage of up to 29%. This dual-layer yield model makes USDe a high-reward financial instrument in the decentralized finance space.

Users quickly flocked to USDe, becoming the third-largest stablecoin pegged to USDe, surpassing DAI’s $4.7 billion, but falling behind USDT and USDC, which have market caps of $135 billion and $40 billion, respectively. According to CoinMarketCap, USDe’s trading volume increased by 24.27% in the last 24 hours, reaching $171.09 million, indicating high demand for yield-generating assets.

How sustainable is the USDe stablecoin model?

Ethena’s USDe has been compared by critics to Terra-Luna, whose value collapsed in 2022 due to its unsustainable growth model. Terra’s collapse has been attributed to its struggle to maintain stability in a declining market, and experts fear USDe could suffer the same fate.

USDe uses a delta-neutral trading strategy that balances long and short positions of BTC and ETH to maintain stability and yield. Ethena maintains long stETH positions on centralized exchanges. If CEX falls, the hedge may remain there; Ethena’s positions are vulnerable to unrealized profits and losses. In a bull market, this technique will work because the funding rate remains positive; However, in bear markets, when the funding rate becomes negative, returns may decline.

We often see something new in this area. I often find myself in the middle curve for long periods of time. I’m comfortable here. However, there were also events in this sector that I wish I had wondered more about, and there were also events that I definitely did…

— Andre Cronje (@AndreCronjeTech) April 3, 2024
Andre Cronje talks about the Margin/Margin model in X.

“Even though things are going great right now (because the market is positive and short-sale funding rates are positive) [because everyone is happy being long]), eventually this changes, funding becomes negative, margin/collateral is liquidated and you have an unbacked asset. The opposite is UST’s $1 billion BTC fund, etc. It is the “law of large numbers”, which is almost the same as. “It works until it doesn’t.”

By Andre Cronje

For example, Andre Cronje, Chief Technology Officer of the Fantom Foundation, emphasized that the USDe model can only be valid in bullish market conditions and that its durability in the bear market has not been proven, which parallels the collapse of Terra-Luna. Secondly, given the increasing efficiency of the crypto market, profit margins, known as basis spreads, may narrow and the profitability of USDe high yields may decrease in the long term.