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This ‘risky’ stablecoin edges Tether, Circle, but… – Arthur Hayes

3min Read

Ethena’s USDe has recorded explosive growth over the past month. Can it compete with Tether and Circle given its inherent risks?

Ethena USDe

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  • USDe is better than Tether or Circle because they share yield with users, says Hayes
  • However, USDe has risks worth understanding before jumping into it  

Ethena’s synthetic dollar, USDe, has seen explosive growth lately given its irresistible yield returns. In fact, it’s now in the top five among stablecoins with over $2.3 billion in market cap. According to Coingecko data, that means a 106% increase in the past 30 days. 

Ethena founder Guy Young recently claimed that USDe is the fastest-growing stablecoin after it hit $2B in market cap in less than 200 days. 

“USDe is the fastest growing USD-denominated asset in the history of crypto.”

USDe vs. Tether, Circle: All about interest income

Arthur Hayes, Former CEO of BitMEX and CIO of crypto-fund Maelstrom, credited USDe’s growth to the product’s yield, unlike Tether’s USDT and Circle’s USDC. 

Hayes, who’s also an investor in Ethena, emphasized, 

“I know Tether and Circle are making billions a year in interest income off of me, and I ain’t got nothing for that. There’s no Tether or Circle’s governance token. So, I think I should be compensated for my capital as well. That’s what Ethena (USDe) does.” 

For perspective, Tether and Circle tokens are largely backed by U.S treasuries, which means they earn interest income when these products mature.

The fact that they don’t share the gained interest income earned from buying U.S treasuries with token holders is what irks Hayes. 

USDe’s unique offer has been attractive to traders and investors alike. However, USDe is not risk-free and has been previously called the “next Terra Luna.” 

USDe risks

For the unfamiliar, USDe generates its yield from opened short positions in centralized exchanges (CEXs). 

However, the product’s design exposes it to inherent risks like negative funding rates and CEXs going under, like in FTX’s case. In fact, one of the notable mitigation strategies set by Ethena is an insurance fund to cover these risks. 

In a recent analysis, Julio Moreno, CryptoQuant’s Head of Research, expounded on these risks and possible solutions. 

The report read,

“Ethena Labs disclosed a series of risks for USDe as a synthetic dollar: funding risk, liquidations risk, custodial risk, exchange failure risk, and collateral risk.”

On funding risks and how big the insurance fund should be for mitigation purposes, the analyst noted,

“The current reserve fund ($32.7 million) would be enough to cover funding payments in this scenario as long as USDe market cap is not larger than $4 billion (current market cap is $2.4 Billion)” 

However, USDe could grow beyond $4 billion. In such a case, Moreno suggested, 

“To safely manage the extraordinary event of large negative funding rates at larger market capitalizations of $5, $7.5 or $10 billion, the reserve fund would need to increase to about $40, $60 and $80 million, respectively.” 

That being said, the research analyst emphasized that the keep rate, the percentage of USDe yield kept in the insurance fund, is the most crucial metric to watch. 

Based on the keep rate, he added, 

“Depending on the actual market capitalization of USDe, the minimum keep rate could change. For example, for a market capitalization of $5 billion, a keep rate above 20% could be enough.”

In conclusion, USDe might grow to compete with Tether or Circle, but its inherent risks are worth understanding before rushing to get its yield.


Benjamin is a Telecommunication Engineering graduate who is passionate about crypto-markets and unraveling market trends. Armed with charts and patterns, he's interested in making the intricate, complex landscape of digital assets more palatable for every user.
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