Ethena’s ‘Risky’ USDe Has ‘An Edge Over Tether, Circle’, But… – Arthur Hayes
Ethena’s USDe is a “risky currency” that is superior to Tether and Circle.
Journalist
- Hayes says USDe is better for users than Tether and Circle because they share the returns with them.
- USDe does come with risks, but it’s important to understand them before jumping into it.
Ethena’s synthetic dollar USDeIts recent growth has been explosive due to its unstoppable returns. In fact, it is aIt now ranks among the top five stablecoins with a market cap of over $2.3 billion. According to Coingecko the following are some of the most effective ways to increase your ROI:That’s a 106% increase in the last 30 days.
Guy Young, founder of Ethena, recently You can claim your right to USDe is the fastest growing stablecoin with a market cap of $2 billion in less than 200 days.
The fastest growing USD-denominated crypto asset is USDe.
Why USDe is Superior to Tether and Circle
Arthur Hayes – former CEO of BitMEX, CIO of Maelstrom and former CEO of BitMEX – attributed USDe’s growth due to the yield of the product. This is different from Tether’s USDT or Circle’s USDC.
Hayes is also an Ethena investor.
Tether and Circle tokens, for example, are mostly backed by US Treasury bonds, which means they pay interest when these products mature.
Hayes is irritated that token holders do not share in the interest income they earn by purchasing US Treasury bonds.
USDe has a unique proposition that is attractive to both traders and investors. USDe is not considered risk-free and has previously been called the “next cryptocurrency”. Terra Luna.”
USDe Risks
USDe returns are generated by short positions on centralized exchanges.
The product design exposes it to risks such as negative funding rates or the failure of CEXs, which was the case with FTX. Ethena has implemented a number of mitigation strategies, including an insurance fund that covers these risks.
In a recent report, Julio Moreno, Head of Research at CryptoQuant, discussed these risks as well as possible solutions.
The report read:
“Ethena Labs has uncovered a number of risks for USDe, a synthetic currency: funding risk (liquidation risk), deposit and exchange default risk, and collateral risk.
The analyst made a note about funding risks and the size of the insurance fund for mitigation purposes.
The current reserve fund ($32.7 million) will be sufficient to cover funding payments in this scenario as long as USDe’s market cap does not exceed $4 billion (currently the market cap is 2.4 billion USD).
However, USDe could rise above $4 billion. In such a case, according to Moreno,
it would be necessary to increase the reserve fund to around $40, $60 and $80 million respectively to safely handle an exceptional event of negative funding rates for larger market caps such as $5, $7.5 or $10 billion.
The research analyst stressed that the most important metric is to keep an eye on the “holding rate”, that is, the percentage of USDe returns held in the fund.
He added that he would base his decision on the holding rate.
The minimum holding rate could vary depending on USDe’s market cap. For example, a $5 billion market cap could allow a holding rate of over 20%.
USDe could grow and be able to compete with Tether and Circle. However, the risks involved should be understood before committing to buying its returns.
