One of the primary factors contributing to USDe’s rapid rise is its unique feature of generating yield for holders, a characteristic lacking in prominent stablecoins such as USDT and USDC.
The global stablecoin market is seeing some key developments with Ethena’s native cryptocurrency USDe gaining massive prominence in recent times. The solid growth trajectory adopted by USDCe has led to analysts seeing a major challenger to USDC and USDT emerging in the market.
As defined by Ethena Labs:
“Ethena is a synthetic dollar protocol on Ethereum which aims to provide the first censorship-resistant, scalable, on-chain form of money: USDe”.
Within a very short period of time, Ethena’s stablecoin USDe has attained a market cap of $2 billion. With the USDe stablecoin, Ethena undertakes a unique approach to its stability, backed by cryptocurrencies like BTC and ETF, instead of the US Dollar.
However, this strategy adopted by Ethena has raised questions about its potential impact on the stablecoin ecosystem. According to insights from the founder of Ethena Labs, USDe has emerged as the fastest-growing stablecoin since its introduction.
One of the primary factors contributing to USDe’s rapid rise is its unique feature of generating yield for holders, a characteristic lacking in prominent stablecoins such as USDT and USDC. USDe accomplishes this by funding payments through short positions on exchanges and Ethereum staking rewards. This is a major differentiating factor for the Ethena stablecoin.
USDe is the fastest growing USD denominated asset in the history of crypto pic.twitter.com/xgiRJjf96t
— G | Ethena (@leptokurtic_) April 8, 2024
How Can Ethena’s USDe Stablecoin Stay Stable?
CryptoQuant’s Head of Research Julio Moreno asked USDe investors to focus on two major factors i.e. the keep rate, which reinvests the generated yield and the reserve fund’s size relative to market cap.
Along with the surge in the USDe’s market cap, the funding payments from the short positions will rise too. Moreno advises maintaining the rate above 20% to ensure the stability of USDe and prevent it from encountering the same fate as other unstable stablecoins, such as Terra’s UST.
For example, with market caps of $5 billion, $7.5 billion, or $10 billion, the reserve fund should ideally amount to approximately $40 million, $60 million, and $80 million, respectively. Moreno has offered a detailed understanding of each of these factors in his post on the X platform.
— Julio Moreno (@jjcmoreno) April 16, 2024
In order to secure its long-term stability, USDe has been quickly adjusting to the changes taking place in the market. Through vigilant monitoring of critical metrics and proactive risk management, USDe aims to establish itself as a reliable choice for investors, revolutionizing the landscape of stablecoins.
Tether CTO Paolo Ardoino has supported stablecoin competition stating that it’s crucial for strong regulatory development. “First of all, competition is great. I always believed that Tether cannot be alone. The stablecoin ecosystem is an industry because there are many players,” Ardoino said.
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