The Birth and Development of a New Type of Stablecoin in the Encryption Ecosystem: USDe

Recently, a new type of encryption native stablecoin USDe has attracted market attention. This stablecoin lies between centralized and decentralized, adopting a structured passive income product format, safeguarding assets on-chain while maintaining stability through a Delta neutral strategy and earning returns.

The background of the birth of USDe is that the current stablecoin market is dominated by USDT and USDC, while the collateral of the decentralized stablecoin DAI is gradually becoming centralized, and algorithmic stablecoins like UST have collapsed after rapid growth. USDe aims to seek a balance between the DeFi and CeFi markets.

The stablecoin adopts a special asset custody method, keeping user assets on-chain while mapping them to the margin provided by the exchange. This approach retains the characteristics of DeFi fund isolation, reducing risks such as the misappropriation of funds by exchanges, while obtaining sufficient liquidity from CeFi.

The underlying yield of USDe comes from the staking yield of Ethereum and the funding rates obtained from the exchange's hedging positions. It can be viewed as a structured universal funding rate arbitrage product.

Currently, the USDe ecosystem includes the following types of assets:

• USDe: stablecoin, minted by depositing stETH
• sUSDe: The certificate token obtained after staking USDe.
• ENA: Protocol governance token, which can be obtained through points redemption.

The minting process of USDe involves depositing stETH into the protocol to mint USDe at a 1:1 USD ratio. The deposited stETH is held in custody by a third party, and a short perpetual position in ETH is opened on the exchange to ensure the collateral value remains stable. Regular users can obtain USDe from external liquidity pools, while institutions that have undergone KYC can mint and redeem directly through the contract.

The protocol adopts the fund custody method of OES (Off-exchange Settlement), using MPC technology to construct custody addresses. This ensures asset transparency while allowing these funds to be used on the exchange. This method reduces exchange risk while retaining the liquidity advantage of the exchange.

The profits of USDe mainly come from ETH staking rewards and funding rate income from short positions on exchanges. Recently, the annualized yield of the protocol has reached as high as 35%, but it has fallen back to around 2% as the market cools down. It is worth noting that the yields of USDe depend on the conditions of the exchange futures market and may be limited by market size.

In terms of scalability, the growth of USDe is mainly limited by the total value of open contracts in the perpetual markets of ETH and BTC. Currently, the market capitalization of USDe is approximately 2.3 billion USD, ranking fifth in the stablecoin market, surpassing most decentralized stablecoins.

However, USDe also faces some risks:

1. Funding rate risk: Insufficient market bullishness or excessive issuance of USD may lead to negative returns.
2. Custody Risk: Reliance on OES and centralized institution services.
3. Liquidity risk: Large position adjustments may face insufficient liquidity.
4. Asset anchoring risk: The decoupling of stETH from ETH may trigger liquidation.

To address these risks, the protocol has established an insurance fund that extracts a portion of the funds from each period's income.

Overall, USDe may become a high-yield, short-term limited scale, and long-term market-following stablecoin. Its innovative model introduces new possibilities in the stablecoin market, but it also needs to seek a balance between expansion and yield.