Ethena USDe, everything you need to know

Ethena USDe, defined in 2023 as an algorithmic stablecoin and now "synthetic dollar", was created precisely to maintain a 1:1 peg with the US dollar through three mechanisms:
- Stores of value, previously only Ethereum LST and now Bitcoin

- Automated arbitrage mechanism that incentivizes users to buy and sell USDe when the price deviates from the peg (sell if it exceeds $1, buy if it falls below $1)
- Lido loan protocol:

Ethena integrates the Lido lending protocol to create an additional stabilization mechanism. In this system, users can deposit ETH in Lido and receive stETH (staked ETH) in return. stETH can be used as collateral to borrow USDe. In particular, stETH serves as collateral for short positions in perps on Ethereum in the derivatives market. That is, if the price of ETH falls, the value of stETH falls and the USDe loan is automatically reduced, protecting the USDe peg.
APY Yield

USDe's high APY yield is one of the main reasons it was invented. But why are they so high? Let's find out together:

- Lending: Ethena lends USDe to users who wish to use the stablecoin for different purposes, such as trading or yield farming. Interest on loans is used to pay users who hold USDe

- Yield Farming: Ethena invests USDe in yield farming protocols on different DeFi platforms that offer high returns in exchange for liquidity. The returns generated are used to pay users holding USDe.

- Staking: Ethena offers users the ability to stake their ETH tokens to receive ETH rewards. ETH rewards are used to pay users who hold USDe.

- Fees: Ethena charges fees on some transactions, such as token swaps
- Store of value: as anticipated, the reserves are Bitcoin and Ethereum and also in this case any returns are used to reward USDe holders

It is crucial to note that USDe's high APY yield (on March 8th it reached 67%, while today it is around 37%) is associated with a certain degree of risk.

Many of you will remember the TerraLuna UST case. Although the product and the team are different, there are some similarities that are worth considering.

As for structural similarities, they are both algorithmic stablecoins, meaning they are not without the backing of a dollar equivalent but use high-risk assets, and both offered/offer high returns attracting investors.

In both cases, there are no detailed publications or comprehensive information on how its stores of value are managed.

In conclusion, USDe requires in-depth study, like any crypto asset.
At the price of high risk, lack of transparency and some doubts regarding its stability, Ethena is able to offer high APY and integration with various DeFi platforms, thus offering numerous financial opportunities.