Ethena USDe (USDE)
Ethena USDe, also known as an 'internet bond,' is a stablecoin fully backed on-chain, leveraging ETH staking yields and perpetual swaps. The issuance and redemption of USDe are managed by Ethena Labs.
Overview
USDe is collateralized 1:1 by Ethereum liquid staking tokens (LSTs) like stETH from Lido. The exposure is hedged on perpetual futures by shorting an equivalent amount of ETH, generating significant yield. Ethena founder Guy Young explains that USDe was designed to address the stablecoin trilemma, which suggests that a stablecoin can't maintain a peg to the underlying asset, be decentralized, and be scalable simultaneously.
| Ticker | USDE |
| Category | Stablecoins |
| Website | https://app.ethena.fi/ |
| @ethena_labs | |
| Contract Addresses | |
|---|---|
| ethereum | 0x4c...b3 Copied! |
| solana | DE...nTCopied! |
Users can acquire USDe through permissionless external liquidity pools. Approved parties from permitted jurisdictions, after passing KYC/KYB screening, can mint and redeem USDe on-demand via Ethena Labs contracts. This service is exclusively available to market-making entities. The trustless collateral is stored within the crypto-system, with no dependence on traditional banking infrastructure, ensuring USDe is fully backed by users' deposits. Additionally, users can engage in Cross Market Arbitrage by minting and redeeming USDe with Ethena and trading it in external markets to capture price dislocations.
USDe price stability mechanism
USDe maintains its peg stability by executing automated and programmatic delta-neutral hedges concerning the underlying collateral assets. Hedging the price change risk ensures that the synthetic USD value of the collateral remains stable across various market conditions.
Mechanics of creating USDe
USDe is created when a user deposits LST, ETH, or USD. The internal swap function aligns with the collateral position, and Ethena directs it to an off-exchange custody account, providing a zero-knowledge proof of position solvency. The off-chain server identifies the venue with the most efficient funding rate, executing a 1x short ETH-PERP. Stability is maintained through delta-neutral positioning between spot stETH and the short ETH perpetual.
Depositors receive USDe, which accumulates yield from staked Ethereum returns and funding payments. This process ensures transparency and security in creating and maintaining USDe within the Ethena ecosystem. Scalability is achieved through derivatives, allowing USDe to scale without significant over-collateralization, as the staked ETH collateral can be perfectly hedged with a short position of equivalent notional, requiring only 1:1 collateralization. Stability is provided through unlevered short perpetual positions executed against the collateral immediately upon issuance. Censorship resistance is achieved by separating collateral from the banking system and storing trustless crypto collateral outside centralized liquidity venues in on-chain, auditable custody account solutions.
Technology
Generated yield
Ethena Labs generates sustainable yield from deposited assets, providing returns to eligible users from staking Ethereum and the funding and basis spread from delta hedging derivatives positions. The yield from staking Ethereum is floating and denominated in ETH, while the funding and basis spread yield can be either floating or fixed, depending on whether non-deliverable or deliverable derivatives are used to hedge the collateral's delta.
Delta-neutral stability
Delta-neutral stability refers to a portfolio that has a delta of 0, indicating no exposure to price changes in the underlying asset. This ensures the portfolio's USD value remains constant regardless of market conditions, as profits from ETH price increases are perfectly offset by losses from the equal-sized short perpetual position. Delta-neutral portfolios aim to mitigate market volatility impacts on overall portfolio value.