Ethena Labs, operating on the Ethereum blockchain, has declared that its synthetic USDe stablecoin will be launched on December 16, 2024. The token’s market cap has soared to a record $5.73 billion.
Via a post on X, Ethena Labs announced the impending release of USDe, which is pegged to the U.S. dollar. Unlike traditional fiat-reserve-backed stablecoins like Tether (USDT) and USD Coin (USDC), USDe is designed mainly as a yield-generating asset. It derives its yield from Ethereum (ETH) staking rewards and avoids the short funding rate for ETH, offering holders an appealing annual percentage yield of up to 29%, making it a lucrative instrument in the DeFi space.
Users have flocked to USDe, propelling it to become the third-largest USD-pegged stablecoin, surpassing DAI’s $4.7 billion market cap. However, it still lags behind USDT and USDC, with market caps of $135 billion and $40 billion respectively. CoinMarketCap data shows that USDe’s trading volume spiked by 24.27% in the past 24 hours to $171.09 million, reflecting strong demand for yield-bearing assets.
Nevertheless, the sustainability of the USDe stablecoin model is under scrutiny. Critics have drawn parallels between USDe and Terra-Luna, whose value crashed in 2022 due to an unsustainable growth model. Terra’s downfall was linked to its inability to maintain its peg to the U.S. dollar during a bear market, and experts are concerned that USDe could face a similar fate.
USDe utilizes a delta-neutral trading strategy, balancing long and short positions in Bitcoin (BTC) and ETH to ensure stability and yield. Ethena hedges long stETH positions on centralized exchanges. While this works well in a bull market with a positive funding rate, in a bear market when the funding rate turns negative, the yield may decline. Andre Cronje of the Fantom Foundation has pointed out that USDe’s model might only be viable in bullish conditions, and its robustness in a bear market remains unproven. Additionally, as the crypto market becomes more efficient, the basis spread (profit margins) could narrow, potentially reducing USDe’s long-term profitability.
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