USDe, created by Ethena Labs, is a synthetic dollar that strives to address what's known as the "stablecoin trilemma"—balancing decentralization, capital efficiency/scalability, and stability. Unlike traditional stablecoins, USDe utilizes a delta-neutral strategy to maintain its value close to one US dollar. This strategy involves hedging with derivatives to counteract fluctuations in the underlying collateral's value, primarily Ethereum in this case.
The synthetic dollar's stability is achieved by offsetting any changes in the price of Ethereum (the underlying collateral) with equivalent changes in the value of derivative positions. This is done without rehypothecating, lending out, or using deposited USDe for other purposes, ensuring the stablecoin maintains a stable value even amidst market volatility.
The high yield offered by USDe originates from the combined returns of staking Ethereum and profits derived from these delta hedging activities. However, it's crucial to understand that, like all crypto assets, USDe carries its set of risks, particularly from its underlying exposure to Ethereum's price movements and the intricacies of delta hedging mechanisms.
