Introduction

Stablecoins play a crucial role in the cryptocurrency market, with stablecoins like USDT and USDC serving as key tools in reducing market volatility and bridging fiat currencies with cryptocurrencies. However, most stablecoins rely on traditional banking systems and single centralized issuers, exposing them to centralization risks and scalability limitations. To address these challenges, Ethena has introduced USDe, a new synthetic dollar asset designed to offer a decentralized and highly scalable solution.

USDe Background and Operational Mechanism

USDe is an emerging synthetic dollar stablecoin launched by Ethena Labs, inspired by the ideas of BitMEX founder Arthur Hayes. In his 2023 article, “Dust on Crust,” he proposed a concept for a “Satoshi Dollar,” backed by a combination of BTC spot long and futures short positions. Ethena Labs brought this concept to life but used ETH as the primary asset for spot and futures positions, ultimately launching USDe.

As a synthetic stablecoin, USDe aims to provide an innovative solution for the decentralized finance (DeFi) sector, overcoming traditional stablecoins’ reliance on centralized institutions and scalability issues. USDe maintains a 1:1 peg with the U.S. dollar through a delta hedging strategy and a mint-redeem mechanism. Users can mint USDe by collateralizing Ethereum or liquid staking tokens, while the delta-neutral strategy ensures that collateral value fluctuations do not impact USDe’s stability. According to Etherscan data, the total supply of USDe issued by Ethena Labs at the time of writing has reached 2,542,904,486 tokens.

How does USDe Work?

Minting and Redemption

Minting and redeeming USDe are two core processes on the Ethena platform that determine its opening and closing mechanisms. Users can create new USDe by providing collateral, using assets such as ETH, BTC, USDT, and stETH. Ethena’s user interface and API support whitelisted users in minting and redeeming USDe, with plans to add SOL as an underlying reserve asset. During the minting process, users are not required to over-collateralize and only need to pay transaction fees and miner fees, aside from the collateral itself. Ethena’s minting process is designed to minimize slippage and ensure transparency. Users must confirm the minting price, including the pre-set slippage range, and the collateral is automatically used to open short perpetual positions. Although direct minting of USDe through the protocol is currently limited to whitelisted users, any cryptocurrency investor can acquire USDe through external exchanges, such as decentralized exchanges like Curve or centralized exchanges.

During the redemption process, Ethena users simply send the synthetic dollar asset to a smart contract address, and the corresponding collateral is returned through an atomic swap. This process does not require full deduction of the original collateral, allowing users to choose partial or full redemption, enhancing flexibility and convenience.

Collateralization and Liquidation

Even though the collateral for USDe consists of mainstream cryptocurrencies, ordinary users cannot directly deposit ETH or BTC to mint USDe. Instead, they can only purchase a range of stablecoin assets (such as USDT, USDC, DAI, etc.) through decentralized exchanges like Curve or centralized exchanges, thereby avoiding liquidation risks.

For whitelisted users (typically institutions, exchanges, and large holders), they can use liquid staking tokens (such as stETH) to mint USDe. These whitelisted users bear the liquidation risk, which may arise from insufficient margins, widening collateral discounts, and severe market fluctuations. When liquidation risks occur, strategies such as additional collateral delegation, asset transfers, and cyclical collateralization can be employed to hedge against risks, effectively managing liquidation threats, protecting user assets, and ensuring the stability of USDe.

It is important to note that Ethena is not a fully decentralized product; it is supported by a centralized asset management team that operates 24/7 and has partnerships with major exchanges. Therefore, Ethena clearly states in its official documentation that in the event of liquidation risks, the asset management team will intervene manually to mitigate risks.

Sources of Income

The mechanism of the Ethena protocol itself provides USDe with two sources of income:

1.For stakers (including individual investors, institutions, and exchange users)

• Staking Passive Benefits
  Users (including individual investors, institutions, and exchange users) can earn passive income by staking liquid staking tokens (LSTs) such as stETH. This income is denominated in ETH, and the staked ETH generates rewards from the blockchain network. These rewards primarily apply to direct ETH staking; however, when using other liquid staking tokens (like stETH), the income is also denominated in ETH, reflecting the network rewards generated by the underlying staked ETH. This includes inflation from the consensus layer, transaction fees from the execution layer, and MEV (Maximal Extractable Value). These rewards accumulate over time and are not directly distributed to holders. Instead, they empower the potential value of their sUSDe, thereby influencing its market performance.

2.For Holders (users holding USDe)

• Funding Rate or Spread
  Another source of income for USDe comes from the funding rates of perpetual contracts. When market demand for leverage on a particular asset increases, traders holding long positions must pay funding rates to those holding short positions. This basis trading and the fluctuations in funding rates introduce uncertainty to the income, but these earnings typically increase significantly during bull markets.

The total income from USDe comes from the staking rate plus market leverage demand. Both sources of income are variable, and these earnings tend to increase further in bull markets. Only users who stake USDe can access these earnings, enhancing the rewards allocated to stakers.

In summary, USDe’s income sources are not limited to traditional staking returns; through market demand and funding rates, it becomes an attractive investment option.

Main Functions and Features of USDe

1.Stability Mechanism
USDe aims to maintain a 1:1 peg to the US dollar through a Delta hedging strategy and a minting-redemption mechanism. This ensures its value remains stable amidst market fluctuations and reduces users’ risks.

2.Decentralization
Unlike many traditional stablecoins, USDe combines both centralized and decentralized features without a single custodial entity, meaning users do not have to rely on a centralized issuer, which enhances its censorship resistance and security.

3.Scalability
USDe’s design allows for efficient scaling without requiring over-collateralization. By combining the spot and derivatives markets, USDe can effectively respond to changes in market demand while maintaining stable value.

4.Income Generation
Users can earn additional income by staking USDe. Participating in Ethereum staking and derivatives trading provides USDe with multiple sources of income, enhancing its appeal.

5.Transparency and Verifiability
USDe’s operations are based on blockchain technology, which allows users to verify collateral and transaction records at any time. This transparency effectively increases user trust in USDe, ensuring the authenticity of its asset backing.

6.Multifunctional Applications
USDe can serve as a medium of exchange and be used for various financial services such as lending and remittances. Its stability makes it an ideal choice for investors looking to hedge against market volatility while providing important support to the decentralized finance ecosystem.

Advantage of USDe

USDe, with its unique trading mechanism, offers functionalities and utilities that most other dollar-pegged assets in the market lack. Unlike stablecoins that rely on centralized custodians (USDT and USDC) to back their dollar value, USDe utilizes a decentralized OES custody system. This approach eliminates the risk of single points of failure while enhancing transparency. As a censorship-resistant asset, USDe does not depend on traditional banking infrastructure for dollar issuance; instead, it stores on-chain collateral through a 24/7 auditable programmatic custody account solution, strengthening the security and accessibility of the collateral backing USDe.

Compared to algorithmic stablecoins, USDe also demonstrates significant advantages, primarily because it does not require over-collateralization. Over-collateralized stablecoins like DAI require users to provide 150% or more in collateral value to ensure stability, which can be unreasonable for many users. USDe avoids high barriers and complexity through its unique pegging mechanism, allowing it to operate without cumbersome over-collateralization. This feature grants USDe high scalability, making it an essential asset for trading and value storage within the decentralized finance ecosystem.

USDe’s New Revenue Model

USDe is a stable and innovative synthetic dollar stablecoin and offers users various flexible and efficient revenue models suitable for different risk appetites and asset management needs. The following introduces the three major revenue models of USDe: USDe Staking, USDe Simple Earn, and USDe wealth management, helping you easily achieve asset appreciation.

USDe Staking

USDe Staking is an on-chain staking product offered by Gate.io. It allows users to stake USDe and delegate it to validators on the Ethena network through Gate.io. Users can easily earn real on-chain rewards, with an annualized rate reaching up to 45%!

1.USDe Staking Rules

Staking period: From 00:00 to 23:59 (UTC) daily; rewards will be distributed on D+2 after staking.
Minimum staking amount per transaction: 0.1 USDe
Product staking limit: No limit
Maximum daily staking amount: 100,000 USDe

2.USDe Staking Redemption Rules

USDe holders can redeem USDe at any time. After submitting the redemption request, funds will be credited on D+7.
Minimum redemption amount per transaction: 0.1 USDe
Maximum daily redemption amount: 100,000 USDe

3.USDe Staking Reward Distribution

For stakes made on Day D, interest starts accruing on Day D+1, and rewards are distributed on Day D+2.

USDe Simple Earn

USDe Simple Earn is a USDe flexible wealth management product that matches users with idle assets to those in need of borrowing. After subscribing to Simple Earn, the system determines whether borrowing is successful and the applicable interest rate at every hour based on the user-set USDe borrowing rate and actual borrowing demand. Successful borrowing allows users to earn interest hourly, supported by a million-dollar bonus pool!

• Million-Dollar Bonus Pool: Besides the instant annualized rate from the lending market, Gate.io offers a million-dollar bonus pool to enhance your USDe annual yield!
• Unified Account Margin: The USDe assets in Simple Earn can serve as a margin for a unified account, making it easy to activate without transferring funds!
• Flexible Management of Idle Assets: Users can deposit and withdraw anytime, supporting on-demand subscriptions and redemptions for optimized asset management.
• Support for One-Click Automatic Earning: At fixed times daily (2:30 UTC and 15:30 UTC), the system automatically uses idle USDe funds in the spot wallet to subscribe to the Simple Earn for flexible earning.

USDe Flexible Staking

Flexible Staking is a product that allows users to earn returns by holding the corresponding cryptocurrency, with no transaction fees and no locking period. Users only need to register and can sell or withdraw at any time. Interest is calculated and distributed based on the user’s holdings, and the product will not automatically reinvest upon maturity.

Conclusion

Overall, USDe, through its decentralized architecture and innovative Delta hedging mechanism, offers a stable and efficient synthetic dollar stablecoin solution for the market. This makes it a stronger option for resisting censorship and enhancing scalability within the DeFi ecosystem, serving as an ideal choice against market volatility.

Additionally, USDe provides stable value storage and offers investors a diverse range of wealth management product options. With flexible investment solutions like USDe mining and saving, users can easily earn additional income through daily payouts while effectively managing idle assets. The design of these financial products not only enhances the appeal of USDe but also assists users in achieving wealth appreciation through sound asset management.

With the rapid development of the DeFi market, USDe provides a stable, secure, and multifunctional option for global investors, offering robust support for wealth management needs in the decentralized finance world.

USDe Frequently Asked Questions

1. Why does the reference annualized rate change, and how is it calculated?
   The reference annualized rate for USDe staking dynamically changes daily based on the on-chain staking principal and rewards.

2. How is my earnings calculated?
   When you stake USDe, your earnings will be distributed in USDe. The amount of earnings depends on the quantity of USDe you stake. The reference daily annualized rate is calculated based on the total USDe rewards under the Ethena protocol and is influenced by daily market fluctuations.
   USDe earnings = USDe holding amount × daily annualized rate / 365.

3. How long until I receive my earnings?
   Staking on day D starts accruing interest on day D+1, with payouts on day D+2.

4. Can I redeem my USDe earnings at any time?
   Yes, you can redeem USDe earnings at any time. The USDe will be credited to your account on day D+7 after initiating the redemption.

5. Does USDe mining require identity verification?
   Like other Gate.io financial products, participating in USDe liquidity staking requires completing personal identity verification.

6. Do sub-accounts support USDe mining?
   Yes, sub-accounts support USDe mining.

7. Can I cancel my stake or redemption after successfully submitting an order?
   No, you cannot cancel the order after submission. However, you can stake or redeem your USDe again through USDe mining.