Synthetic stablecoin USDe: An innovative bridge between Decentralized Finance and CeFi

The cryptocurrency market has recently seen the emergence of a new type of synthetic dollar stablecoin, USDe, which employs a unique structural design that cleverly balances the advantages of decentralization and centralization. The emergence of USDe represents an innovative attempt at reshaping the current stablecoin market landscape.

The background of USDe's birth can be traced back to several major issues in the current stablecoin market: centralized stablecoins like USDT and USDC dominate the market, the collateral of decentralized stablecoin DAI is gradually becoming centralized, and algorithmic stablecoins like UST ultimately collapsed after rapid growth. In such an environment, USDe tries to seek a balance between DeFi and CeFi.

USDe adopts an asset custody service called OES, which keeps user assets on-chain while mapping the corresponding amounts to centralized exchanges. This method retains the transparency of Decentralized Finance while gaining the liquidity advantages of CeFi, effectively reducing risks such as fund misappropriation by exchanges.

The underlying yield of USDe comes from two main sources: Ethereum staking rewards and the funding rate obtained from the exchange's hedging positions. This structured yield model is regarded as a universal funding rate arbitrage product.

Currently, the USDe ecosystem includes three main assets:

1. USDe - stablecoin minted by depositing stETH
2. sUSDe - The certificate token obtained after staking USDe
3. ENA - Governance token of the protocol, which can be obtained through point redemption.

The minting and redemption process of USDe is as follows: Once users deposit stETH into the protocol, they can mint USDe at a 1:1 ratio. The deposited stETH is held in custody by a third party, and a corresponding ETH short perpetual position is opened on the exchange to maintain delta neutrality. Ordinary users can obtain USDe from external liquidity pools, while approved institutions can directly mint and redeem through the contract.

The OES custody method uses MPC technology to construct custody addresses, ensuring both the on-chain transparency of assets and the ability to collaborate with exchanges to provide financial services. This method maximizes the user's control over their assets.

The returns of USDe mainly come from two aspects: ETH staking rewards and the funding rate returns from the exchange's short positions. The funding rate is settled periodically based on the price differences between spot and perpetual contracts, while the basis refers to the deviation between spot and futures prices. Ethena obtains these returns through flexible strategies.

From a yield perspective, USDe has performed well recently, but it has also fluctuated with market sentiment. Currently, the annualized yield of sUSDe is around 4%, which has decreased compared to before. The yield of USDe largely depends on the situation of the futures market in centralized exchanges.

The scalability of USDe is mainly limited by the open interest size of the ETH perpetual market. Currently, the total open interest value of ETH and BTC is approximately $42 billion, while the issuance of USDe has reached $2.3 billion. This means that the growth potential of USDe is closely related to the size of the perpetual market.

Compared to other stablecoins, USDe currently ranks fifth, surpassing most decentralized stablecoins. However, to further scale, it needs to increase corresponding short positions in the market, which poses certain challenges given the current market environment.

The main risks faced by USD include: funding rate risk, custody risk, liquidity risk, and asset anchoring risk. To address these risks, Ethena has established an insurance fund, which allocates regular payments from the protocol's revenue.

Overall, USDe represents an innovative stablecoin model that seeks to strike a balance between decentralization and centralization. Its success or failure will have a profound impact on the entire cryptocurrency ecosystem.