What is USDe?
USDe is a "synthetic dollar": a stablecoin that maintains a value of approximately one US dollar without holding money in banks. It is issued by the Ethena protocol based on Ethereum.
How it works
The protocol accepts crypto assets as collateral (for example, ether and staking derivatives) and simultaneously opens short positions on futures for the same assets. This delta-neutral strategy offsets price fluctuations of the collateral: a decline in asset value is covered by profits from the short position. Funding fees and staking rewards are distributed to holders of the locked version of the token.
Pros and cons
- Pros: independence from the banking system, potential returns higher than traditional stablecoins, scalability.
- Cons: dependence on funding rates which can turn negative, counterparty exchange risks, a more complex and less proven model compared to reserve-backed stablecoins.