$2 Billion Surge by Ethena USDe Sends Shockwaves through Stablecoin Market, USDT & USDC’s Future at Risk

A newcomer has emerged in the stablecoin market, challenging the dominance of established players like USDT and USDC. USDe, a recently launched stablecoin, has rapidly reached a market cap of $2 billion. What sets USDe apart is its unique approach to stability, as it is backed by cryptocurrencies such as ETH and BTC instead of physical US dollars.

Led by Julio Moreno, the Head of Research at CryptoQuant, USDe’s unconventional strategy has generated interest and raised questions about its potential impact on the stablecoin ecosystem.

The rapid rise of USDe to a $2 billion market cap has caught the attention of investors and industry experts. Unlike traditional stablecoins that rely on fiat currency reserves or over-collateralization with cryptocurrencies, USDe maintains its 1:1 peg to the US dollar through a process called “delta hedging staked Ethereum collateral.” This innovative strategy protects USDe from the volatility of its underlying collateral, ensuring stability even in fluctuating market conditions.

Insights from the founder of Ethena Labs indicate that USDe is the fastest-growing stablecoin since its launch. One of the key drivers behind its ascent is the ability to generate yield for holders, a feature that leading stablecoins like USDT and USDC lack. USDe achieves this by funding payments from short positions on exchanges and ETH staking rewards.

Risk management is crucial for USDe investors, according to Julio Moreno. He emphasizes two key factors: the size of the reserve fund relative to the market cap and the keep rate, which reinvests the generated yield. As USDe’s market cap increases, funding payments from short positions also rise. Moreno suggests keeping the rate above 20% to ensure the stability of USDe and avoid the fate of failed stablecoins like Terra’s UST. For example, at market caps of $5 billion, $7.5 billion, or $10 billion, the reserve fund should ideally reach about $40 million, $60 million, and $80 million, respectively.

USDe is swiftly adapting to market changes to secure its long-term stability. By closely monitoring key metrics and actively managing risks, USDe aims to become a reliable option for investors and reshape the way stablecoins operate.