Synthetic dollar vs fiat and RWA backed stablecoins
Existing Fiat and RWA Stablecoins
Centralized stablecoins, such as USDC or USDT, provide stability and capital efficiency, but they introduce:
Unhedgeable custodial risk with bond collateral in regulated bank accounts which are prone to censorship.
A critical reliance upon the existing traditional banking infrastructure and country-specific evolving regulations.
A "return-free risk" for the user as the issuer internalizes the yield whilst exporting the risk of the depeg to users' holding the fiat stablecoin.
Represent an unsecured credit position to both the issuer and underlying bank holding the collateral assets while mixing these assets with other bank lending activities eg Silicon Valley Bank.
Other centralized stablecoins that use "Real World Assets" (RWAs) as the collateral backing & distribute the yield face the same confiscation & censorship risk.
Fiat or RWA-backed Stablecoins are critically reliant upon the traditional banking infrastructure & regulatory environment to enable "mint" & "redeem" requests, ensuring the peg.
As with USDC during the Silicon Valley Bank run, the value of the fiat-backed stablecoin depegged for a few days given the inability of Circle to facilitate "mint" & "redeem" requests.
In essence, just because a stablecoin is backed by fiat or RWAs, it doesn't guarantee peg stability in all circumstances.
Risks of USDe as Synthetic Dollar
Ethena is committed to transparency. We believe it is crucial to highlight the risks associated with USDe, the actions we have taken to mitigate these risks, as well as the future plans to further manage and ameliorate these risks.
In this section we will discuss the following risks:
We would greatly appreciate any feedback or information you would like to see to help the protocol be as transparent as possible. If you believe any risk has not been adequately surfaced please reach out in Discord and notify the contributors.