A crypto-native synthetic dollar utilizing Ethereum, onchain custody, and centralized liquidity venues
Ethena Labs believes a delta-neutral synthetic dollar that holds collateral outside the banking system and that can access centralized liquidity addresses the challenges of existing stablecoin designs.
USDe is enabled by Ethena Labs via hedging the delta of spot assets backing the token during minting. As a result, USDe provides the following benefits:
i) Scalability is achieved by utilizing derivatives which allows for USDe to scale with capital efficiency. Since the staked ETH collateral can be perfectly hedged with a short position of equivalent notional, the synthetic dollar only requires 1:1 "collateralization."
ii) Stability is provided through hedges executed against the transferred assets immediately on issuance that ensures the synthetic USD value of USDe backing in all market conditions.
iii) Censorship Resistance by separating backing from the banking system and storing trustless backing assets outside of centralized liquidity venues in onchain, transparent, 24/7 auditable, programmatic custody account solutions.
By focusing on staked Ethereum - the only collateral asset that can provide an uncensorable and trustless native yield at scale - the Ethena protocol addresses all of the aforementioned issues while providing users access to fully custodial and backed stability with an embedded yield inherent to the protocol system. Most importantly, doing so without a dependence on the existing banking system.
Utilizing recent developments in "off-exchange" MPC secured custody accounts to access centralized liquidity, while retaining the core value proposition of transparency and onchain custody, we are able to scale USDe into the billions as the crypto-native dollar for both the decentralized and centralized crypto-ecosystems. As the mechanics of forming USDe backing inherently create a protocol-level yield, we are also able to create an Internet Bond alongside USDe that scales with it.
Enabling Ethereum to evolve into a stable form of money will not only support significant capital inflows into both the centralized & decentralized ecosystems; it will also provide the most important native money asset across crypto markets.