Stablecoins have gone through 3 evolutions. Generation 1 like USDT, USDC: You give the company $1, they store it and print you a token. Secure but centralized. Generation 2 like DAI. You collateralize $150 ETH to borrow $100 DAI. Decentralized but capital inefficient. And now Generation 3 USDe by Ethena. Cashless, no overcollateralization. It maintains the value of $1 with a price hedging strategy.
๐ธ What is Delta Neutral Mechanism. How Does It Stay $1? Ethena operates on a classic Hedge Fund strategy called Cash and Carry:
You deposit 1 BTC into Ethena, assume BTC price = $100,000.
Ethena uses that 1 BTC as collateral to immediately open a Short 1 BTC position on derivatives exchanges with 1x leverage.
The Math Magic:
If BTC Pumps to $110,000: Your spot BTC gains $10,000. The Short position loses $10,000. ๐ Net Value = $100,000.
If BTC Dumps to $90,000: Your spot BTC loses $10,000. The Short position gains $10,000. ๐ Net Value = $100,000.
๐ Regardless of market volatility, the Total Value (Delta) remains constant. That's why USDe stays pegged at $1.
๐ธ Where Does The Massive Yield Come From? Why does USDe offer 10 to 30% APY? It comes from 2 sources:
Staking Yield ๐Collateral is often stETH (Staked ETH), earning 3 to 4% natively.
Funding Rate ๐ In a Bull Market, Longs outnumber Shorts. To keep positions open, Longs pay Shorts. Since Ethena holds massive Short positions, they collect these payments from traders globally and pass them to you.
๐ธ Black Swan Risks:
If the market crashes hard, Shorts must pay Longs. Ethena would bleed assets, draining its insurance fund.
Ethena keeps assets on CEXs to execute Shorts. If an exchange fails, USDe loses its backing.
๐น Ethena is not a Ponzi like LUNA/UST printing money on faith. It is a Tokenized Hedge Fund. It performs exceptionally well in bullish conditions but requires caution in bearish ones.
Do you dare hold your wealth as a complex trading strategy instead of actual cash?
News is for reference, not investment advice. Please read carefully before making a decision.
