Original author: Terry
Original source: Vernacular blockchain
Original title: Will USDe, which is popular in capital, be unanchored and reset to zero like UST?
The stablecoin track has always been regarded as one of the holy grails of the crypto world, whether it is Tether's USDT or Terra's UST, both of which have played a pivotal role as heavyweight players in the industry.
In the past two months, a rookie project with a high-yield label has been born and quickly risen to become the fifth largest stablecoin on the whole network: on February 19, USDe issuer Ethena Labs launched a public mainnet, aiming to create a synthetic USD based on Ethereum (ETH), with a supply of more than 2.366 billion as of the time of writing, second only to USDT, USDC, DAI, and FDUSD.
Source: https://www.coingecko.com So what kind of stablecoin project is USDe, how can it break out of the encirclement in such a short period of time, and what controversies are hidden behind it?
01
The fast-rising stablecoin USDe
The biggest impact of USDe on the stablecoin market is undoubtedly that just two months after its launch, the overall volume has risen rapidly from 0 to more than $2.3 billion due to its high yield.
According to data from the official website of Ethena Labs, as of the time of writing, the annualized yield of USDe is still as high as 11.6%, and it has remained above 30% before, which is reminiscent of the UST in Anchor Protocol, which has an annualized yield of up to 20%.
Ethena协议年化收益率和USDe年化收益率
What kind of stablecoin mechanism is USDe, and why does it have such a high annualized return? Behind this is actually a refined version of Satoshi Nakamoto's dollar idea mentioned by the BitMEX founder in the article "Dust on Crust".
In short, if you remove the Airdrop revenue expectation, there are currently two main sources of high revenue for USDe:
ETH 的 LSD 质押收益；
Funding rate income from Delta hedged positions (i.e., short positions in perpetual futures);
The former is relatively stable, currently floating around 4%, while the latter is completely dependent on market sentiment, so the annualized return of USDe also directly depends on the network-wide funding rate (market sentiment) to some extent.
The key to the operation of this mechanism lies in the "Delta Neutral" strategy, which is "Delta neutral" if the portfolio consists of underlying financial products and its value is not affected by small price changes in the underlying asset.
In other words, USDe will form a "Delta neutral strategy" through an equal amount of spot ETH/BTC long positions and futures ETH/BTC short positions: the Delta value of the spot position is 1, the Delta value of the futures short position is -1, and the Delta value after the two hedges is 0, that is, the "Delta neutral" is achieved.
To put it simply, when the USDe stablecoin module receives user funds and buys ETH/BTC, it will simultaneously open an equal amount of short positions, so as to keep the total position of each USDe stable through hedging, which also ensures that the collateral position has no risk of liquidation loss.
For example, if a user deposits 1 UBTC, the USDe stablecoin module will sell 1 futures BTC at the same time, forming a "Delta neutral" portfolio of USDe.
For example, we can see that:
If BTC is initially $80,000, then the total value of the portfolio is 8+0=$80,000, so the total position value is still $80,000;
If BTC falls to $40,000, then the total value of the portfolio is still 4+4=$80,000, so the total position value is still $80,000 (and the same goes for the increase);
At the same time, the corresponding short futures position in the USDe stablecoin module can receive funding rate income paid by long positions due to the opening of 1 BTC of perpetual futures (historically, Bitcoin has historically had a positive funding rate for the majority of the time, which also means that the overall return of short positions will be positive, and this situation is even worse in the context of strong bull market sentiment).
When combined, USDe can achieve an annualized yield of 20% or more. It can also be seen from this that USDe's high annualized yield is especially guaranteed when the market is extremely bullish – as Ethena Labs takes advantage of the opportunity to earn funding rates by shorting in a bull market.
02
Old Pond or New Solution?
Interestingly, there has been a growing debate about ENA/USDe in the community recently, with many people even comparing it to the old Terra/Luna, calling it the new version of Terra/UST's left-footed right-footed Ponzi gameplay.
In fact, objectively speaking, the first half of USDe's stablecoin generation/stabilization mechanism is significantly different from the gameplay of Terra, and it does not belong to the gameplay of Tiyun Zong (Tiyun Zong, Wudang faction's light stunt, which means that you can ascend to heaven with your left foot and right foot), on the contrary, because it is harvesting all traders who are long in the bull market and pay funding fees for it, the high yield is supported, which is also the biggest difference between it and Terra.
It is worth noting that in fact, it is the second half of Ethena - once it encounters the test of de-anchoring, it is really possible to embark on a negative spiral suicide path similar to that of LUNA/USDe, resulting in the possibility of a run and accelerated crash.
In other words, there may be a non-linear emotional singularity - the funding rate continues to start to be negative and continues to increase, the market begins to have Fud discussions, USDe yields plummet + de-anchoring premium, and then the market value plummets (user redemption):
For example, if it falls from $10 billion to $5 billion, Ethena will have to close the short position and redeem the collateral (e.g. ETH or BTC), and if there are any problems in the redemption process (wear and tear caused by liquidity issues in extreme market conditions, large market volatility, etc.), the USDe peg will be further affected.
来源:coinglass
This negative feedback mechanism does not rule out that it will be maliciously sniped and detonate this singularity, thus facing a negative spiral dilemma similar to that of the UST crash, so for investors, whether this "collapse singularity" will appear, when it will appear, and whether it can be withdrawn in time is the key to whether the bull market game in USDe can be retreated.
It is worth noting that with the recent sharp pullback in the market, the funding rate of BTC and ETH has decreased significantly from more than 20% annualized, and even began to turn negative, with the latest data BTC is -1.68% and ETH is 0.32%.
According to the data on the official website of Ethena Labs, the total value of USDe's bitcoin-collateralized assets exceeds $800 million, and the Ethereum position exceeds $1 billion, accounting for nearly 80% of the total.
Because Ethena is actually harvesting all the crypto traders who are long in the bull market and pay funding fees for it, the high yield is extremely dependent on the positive funding rate behind the market sentiment, and from this perspective, if the network-wide funding rate continues to turn negative, or even increases, USDe is likely to face a sharp drop in yield.
03
The trade-off of the stablecoin track
Bringing the perspective back to the macro, the stablecoin track has always been a lucrative super cake, and in horizontal comparison, the attributes of a leading player like Tether are even no less than CEX:
Tether generated net income of about $6.2 billion in 2023, 78% of Goldman Sachs ($7.9 billion) and 72% of Morgan Stanley ($8.5 billion) in the same period, while Tether has about 100 employees, which has 49,000 and 82,000 employees, respectively.
Net income, total number of employees, and employee income of major companies as of December 31, 2023, source: @teddyfuse
Previously, in the article "Quarterly Revenue of $700 Million! Watch USDT Make a Fortune to Know Why the Stablecoin Track Is Crowded" mentioned that Tether is currently almost the most profitable crypto company outside of trading platforms (CEX is probably only Binance can stabilize the head).
For Web3 projects and crypto companies that are generally still operating at a "loss" and selling tokens for subsidies, it is even more unattainable, which is one of the main reasons why the stablecoin business is so popular.
According to CoinGecko data, among the top 5 stablecoin players, the total circulation of USDT has exceeded $109 billion, accounting for about 69% of the total stablecoin on the network.
In addition to one dominant USDT, since the U.S. regulators shut down Silicon Valley Bank on March 10, 2023, USDC net outflows have exceeded $112 billion, and the total circulation has fallen to about $33 billion, a decline of about 30%, temporarily ranking second, and compared with the third-place DAI ($5 billion), it is a faulty lead.
In addition, BUSD has been replaced by FUSD due to regulatory pressure, and Binance has accelerated the frequency of LaunchPoll, with the total volume quickly exceeding $3.5 billion, followed by the sudden emergence of USDe, with a new variable worth looking forward to.
In general, in the context of the elimination of decentralized stablecoins and the "reserve + regulation" of centralized stablecoins, decentralized stablecoins have become the biggest expectation of the market for the "holy grail" of the stablecoin industry, so the high-yield USDe can rise rapidly.
And we are only in the early stages of the long-term stablecoin race, and the arrival of new players like FDUSD and USDe is likely to change the competitive landscape and bring new variables to the stablecoin market, which is worth looking forward to.