Yesterday, the de-pegging of USDe raised concerns among many people, with the biggest worry being whether USDe would become the second Luna.
Let me explain. First, the conclusion: it’s impossible, because the mechanisms are different.
1 USDe and ENA Mechanism
Although USDe and UST are both assets synthesized using collateral, the difference is that UST uses its own project token, Luna, for collateral synthesis. During a bullish spiral, this drives the price of Luna up, as users continuously buy Luna to synthesize UST. However, in a bear market, when UST de-pegs, it accelerates the decline of Luna.
USDe, on the other hand, does not use ENA for collateral generation. Instead, it uses major stablecoins like BTC and ETH for generation.
Most importantly, USDe has learned from the failures of other stablecoin protocols. It performs delta hedging against non-stablecoin assets like BTC and ETH. When it receives $100 worth of ETH to generate USDe, it will short $100 worth of ETH on the exchange for hedging.
This way, USDe will not suffer from insufficient collateral value due to a crash in ETH, and will always maintain a value of $1.
2 Sources of Income for USDe
USDe has a high annual yield, generally around 5%. Unlike Luna, which relies on token rewards, it provides real returns. There are three sources of income for USDe.
1) The income from short hedging, which is the funding rate earned. Historically, except for the major bear market in 2022, the funding rate income has generally been around 10%.
2) Staking income, such as the staking rewards from ETH and BTC.
3) Income from stablecoins. For example, collaborating with USDC, where the counterpart provides rewards.
The core of USDe is delta hedging, which ensures that its value is not affected by the price fluctuations of the collateral assets, while also providing the main source of income for USDe.
Of course, delta hedging can be somewhat challenging, so USDe's growth may be slow at first. After more than three years of stable operation, the industry has accepted the team's capabilities, which has led to a period of rapid growth.
USDe Proof of Reserves are typically provided on a weekly basis by 3rd party independent attestors including leading firms such as Chaos Labs, Chainlink, Llama Risk and Harris & Trotter.
On request from the community, we have provided a Proof of Reserves outside of the regular cadence following the market events in the last 24hrs which have been linked below this message.
Each of these independent 3rd parties have confirmed USDe remains overcollateralised by approximately ~$66m.
Maximum transparency.
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