What Is USDe? Exploring Its Multi-Faceted Earning Potential

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Introduction

Stablecoins play a crucial role in the cryptocurrency market, with established tokens like USDT and USDC serving as essential tools for reducing volatility and bridging the gap between fiat currencies and digital assets. However, most stablecoins rely on traditional banking systems and centralized issuers, exposing users to risks associated with centralization and scalability limitations. To address these challenges, Ethena introduced USDe—a synthetic dollar asset designed to offer a decentralized, scalable, and transparent alternative.

Background and Operational Mechanism of USDe

USDe is an emerging synthetic dollar stablecoin launched by Ethena Labs, inspired by concepts proposed by BitMEX founder Arthur Hayes. In his 2023 essay “Dust on Crust,” Hayes introduced the idea of a “Satoshi Dollar,” backed by a combination of spot long positions in Bitcoin and perpetual short futures positions. Ethena Labs brought this vision to life, using Ethereum (ETH) as the primary asset for both spot and futures positions, ultimately launching USDe.

As a synthetic stablecoin, USDe aims to provide an innovative solution for the decentralized finance (DeFi) sector, moving beyond dependence on centralized institutions and addressing the scalability issues common in traditional stablecoins. USDe maintains a 1:1 peg with the U.S. dollar through a delta-hedging strategy and a mint-and-redeem mechanism. Users can mint USDe by providing collateral such as Ethereum or liquid staking tokens, while the delta-neutral strategy ensures that fluctuations in collateral value do not impact USDe’s stability.

How Does USDe Work?

Minting and Redeeming

Minting and redeeming are core processes within the Ethena platform that determine how USDe is created and withdrawn. Users can mint new USDe by supplying collateral in the form of assets like ETH, BTC, USDT, or stETH. Ethena’s user interface and API support whitelisted users for minting and redeeming, with plans to include SOL as an underlying reserve asset. During the minting process, users are not required to over-collateralize and only need to cover transaction fees, gas costs, and the collateral itself. Ethena’s minting mechanism is designed to minimize slippage and ensure transparency. Users confirm the minting price, including a predefined slippage range, and the collateral is automatically used to open perpetual short positions. While direct minting via the protocol is currently limited to whitelisted users, any cryptocurrency investor can acquire USDe through external decentralized exchanges (DEXs) like Curve or centralized exchanges (CEXs).

During redemption, 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 for partial or full redemptions and enhancing flexibility.

Collateralization and Liquidation

Although USDe collateral consists of popular cryptocurrencies, everyday users cannot directly deposit ETH or BTC to mint USDe. Instead, they can purchase a variety of stable assets (like USDT, USDC, or DAI) through DEXs or CEXs, avoiding liquidation risks.

Whitelisted users (typically institutions, exchanges, and large holders) can use liquid staking tokens (e.g., stETH) to mint USDe. These users bear liquidation risks, which may arise from insufficient margins, increasing collateral discounts, or severe market fluctuations. When liquidation risks occur, strategies such as adding collateral, transferring assets, or cyclical collateralization can be employed to mitigate risks, protect user assets, and ensure USDe’s stability.

It is important to note that Ethena is not a fully decentralized product; it is supported by a centralized asset management team operating 24/7 and partnered 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 potential issues.

Revenue Sources

The Ethena protocol provides USDe with two primary revenue streams:

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

Users can earn passive income by staking liquid staking tokens (LSTs) like stETH. This income is denominated in ETH, and the staked ETH generates rewards from the blockchain network. These rewards apply primarily to direct ETH staking; however, when using other LSTs (like stETH), the income is also ETH-denominated, reflecting the network rewards generated by the underlying staked ETH. This includes consensus layer inflation, execution layer transaction fees, and maximal extractable value (MEV). These rewards accumulate over time and are not distributed directly to holders. Instead, they enhance the potential value of sUSDe, influencing its market performance.

  1. For Holders (users holding USDe)

Another revenue source for USDe comes from perpetual contract funding rates. When market demand for leverage on a specific asset increases, traders holding long positions must pay funding fees to those holding short positions. Basis trading and fluctuations in funding rates introduce income variability, but these gains often increase significantly during bull markets.

USDe’s total revenue derives from staking yields plus market leverage demand. Both income sources are variable and tend to amplify during bullish markets. Only users staking USDe can access these earnings, increasing the rewards allocated to stakers.

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

Key Features of USDe

  1. Stability Mechanism

USDe aims to maintain a 1:1 peg with the U.S. dollar through a delta-hedging strategy and a mint-redeem mechanism. This ensures value stability amid market fluctuations and reduces user risk.

  1. Decentralization

Unlike many traditional stablecoins, USDe combines centralized and decentralized features without a single custodial entity. Users do not need to rely on a centralized issuer, enhancing censorship resistance and security.

  1. Scalability

USDe’s design enables efficient scalability without requiring over-collateralization. By integrating spot and derivatives markets, USDe can effectively respond to changes in market demand while maintaining stable value.

  1. Revenue Generation

Users can earn additional income by staking USDe. Participating in Ethereum staking and derivatives trading provides multiple revenue streams, increasing its appeal.

  1. Transparency and Verifiability

USDe operations are blockchain-based, allowing users to verify collateral and transaction records at any time. This transparency builds user trust and ensures the authenticity of asset backing.

  1. Multifunctional Applications

USDe serves as a medium of exchange and supports various financial services like lending and remittances. Its stability makes it an ideal choice for investors seeking protection against market volatility while supporting the DeFi ecosystem.

Advantages of USDe

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

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

USDe’s Revenue Models

USDe is an innovative synthetic dollar stablecoin that offers users multiple flexible and efficient revenue models suited for different risk appetites and asset management needs. Below, we explore three primary revenue options: USDe Mining, USDe Simple Earn, and USDe Flexible Staking, helping you easily achieve asset appreciation.

USDe Mining

USDe Mining is an on-chain staking product that allows users to stake USDe and delegate to validators on the Ethena network. Users can earn real on-chain rewards with annualized rates of up to 20%!

  1. USDe Mining and Staking Rules

Staking period: Daily from 00:00 to 23:59 UTC; rewards are distributed on D+2 after staking.

Minimum staking amount per transaction: 0.1 USDe

Product staking limit: No limit

Maximum daily participation: 100,000 USDe

  1. USDe Mining Redemption Rules

USDe holders can redeem at any time. After submitting a redemption request, funds are credited on D+7.

Minimum redemption amount per transaction: 0.1 USDe

Maximum daily redemption: 100,000 USDe

  1. USDe Mining Reward Distribution

For stakes made on day D, interest accrual begins on D+1, and rewards are distributed on D+2.

USDe Simple Earn

USDe Simple Earn is a flexible wealth management product that matches users with idle assets to those needing loans. After subscribing to Simple Earn, the system determines loan success and applicable interest rates hourly based on user-set USDe lending rates and real-time loan demand. Successful loans allow users to earn hourly interest, supported by a million-dollar bonus pool!

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 lock-up period. Users simply register and can sell or withdraw at any time. Interest is calculated and distributed based on user balance, and the product does not auto-reinvest upon maturity.

Conclusion

Overall, USDe offers a stable and efficient synthetic dollar solution for the market through its decentralized architecture and innovative delta-hedging mechanism. It provides a stronger option for censorship resistance and scalability within the DeFi ecosystem, serving as an ideal choice against market volatility.

Additionally, USDe offers stable value storage and diverse wealth management product options for investors. With flexible investment solutions like USDe Mining and Simple Earn, users can easily earn additional income through daily payments while effectively managing idle assets. The design of these financial products not only enhances USDe’s appeal but also helps users achieve asset appreciation through solid 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 world of decentralized finance.

Frequently Asked Questions

  1. Why does the annualized reference rate change, and how is it calculated?

The annualized reference rate for USDe staking changes dynamically daily based on the principal and on-chain staking rewards.

  1. How are my earnings calculated?

When you stake USDe, your earnings are distributed in USDe. The amount of earnings depends on the quantity of USDe you stake. The daily annualized reference rate is calculated based on the total USDe rewards received by all validators under the Ethena protocol and is influenced by daily market fluctuations. Earnings in USDe = amount of USDe held × daily annualized rate / 365.

  1. How long until I receive my earnings?

Staking on day D begins accruing interest on D+1, with payments on D+2.

  1. Can I redeem my USDe earnings at any time?

Yes, you can redeem USDe earnings at any time. USDe will be credited to your account on D+7 after initiating redemption.

  1. Does USDe Mining require identity verification?

Like other financial products, participating in USDe liquidity staking requires completing personal identity verification.

  1. Do sub-accounts support USDe Mining?

Yes, sub-accounts support USDe Mining.

  1. Can I cancel my staking or redemption after successfully submitting a request?

No, you cannot cancel the request after submission. However, you can stake or redeem your USDe again through USDe Mining.

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