In simple terms, the market for stablecoins around the world is experiencing significant advancements. Notably, Ethana’s native digital currency, USDe, has gained considerable popularity recently. The consistent growth path of USDe has sparked speculation among analysts, who now view it as a potential serious competitor to USD Coin and Tether (USDT) in the marketplace.
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”.
In just a brief span of time, USDe from Ethena has reached a market value of 2 billion dollars. Unlike most stablecoins that rely on the US Dollar for backing, USDe from Ethena employs a distinct strategy: it is secured by cryptocurrencies such as Bitcoin and ETFs instead.
Yet, Ethena’s approach with its stablecoin USDe has sparked debates regarding its implications for the stablecoin market. The founder of Ethena Labs shares that USDe is rapidly expanding and has become the most swiftly growing stablecoin since its launch.
One significant reason USDe has rapidly gained popularity is its distinctive ability to pay out returns to its holders, an feature not found in well-known stablecoins like USDT and USDC. USDe achieves this by financing transactions through short positions on exchanges and earning rewards from Ethereum staking. This sets USDe apart as a unique offering within the Ethena stablecoin marketplace.
USDe is the fastest growing USD denominated asset in the history of crypto
— G | Ethena (@leptokurtic_) April 8, 2024
How Can Ethena’s USDe Stablecoin Stay Stable?
According to Julio Moreno, the Head of Research at CryptoQuant, it’s crucial for USDe investors to consider two significant aspects: the keep rate, which puts earned yields back into investment, and the reserve fund’s proportional size compared to the overall market capitalization.
As the value of USDe in the market increases, so will the payments made to those who have short positions on it. According to Moreno’s recommendation, keeping the rate above 20% is essential for USDe’s stability and helps prevent it from experiencing the same instability as other volatile stablecoins, such as Terra’s UST.
Based on market capitalizations of $5 billion, $7.5 billion, or $10 billion, it’s recommended that the reserve fund hold around $40 million, $60 million, and $80 million respectively. Moreno provides a comprehensive explanation of these factors in his post on the X platform.
— Julio Moreno (@jjcmoreno) April 16, 2024
To ensure long-term durability, USDe promptly adapts to market shifts. By closely watching essential indicators and taking swift action to mitigate risks, USDe aspires to become a trusted investment option, disrupting the stablecoin sector with its dependability.
“Tether CTO Paolo Ardoino endorses healthy competition among stablecoins, believing it’s essential for effective regulatory frameworks. He stated, ‘Competition is wonderful. I’ve always felt that Tether shouldn’t stand alone in the stablecoin market. The industry thrives because of multiple participants.'”
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2024-04-17 14:45