USDe Stablecoin Market Cap Surges 400% in a Month, Reaching $840 Million

According to CryptoPotato, Ethena Labs' stablecoin initiative USDe has experienced significant adoption, with its market cap increasing by over 40% in the last week and by 400% in the last month, reaching $840 million. Despite concerns raised within the community following the Terra ecosystem's downfall, Arthur Hayes remains optimistic about Ethena's potential to deliver a synthetic USD based on a public blockchain. Ethena Labs introduced its USDe synthetic dollar on the public mainnet on February 19, sparking apprehension among investors due to the Ethereum-based synthetic dollar offering a 27.6% annual percentage yield (APY), surpassing the 20% yield provided by Anchor Protocol on Terra's UST prior to the collapse of the algorithmic stablecoin issuer in May 2022. Hayes clarified that the method by which USDe generates yield differs entirely from that of UST, with Ethena utilizing two assets to generate yield: ETH staking yield and positive perp swap funding. Hayes highlighted that Ethena carries exchange counterparty risk as it is not decentralized and does not aspire to be so. Instead, it maintains short perp swap positions on centralized derivative exchanges. To address this risk, Ethena employs third-party custodians, similar to how Tether's counterparty risk lies with TradFi banks. While Tether faces counterparty risk with TradFi banks, Ethena's risk lies with derivative CEXs and crypto custodians. However, these CEXs are investors in Ethena and have a vested interest in maintaining security and ensuring proper payouts on derivatives. They are highly profitable entities within the crypto industry and are motivated to sustain this profitability. As Ethena expands, the open interest in derivatives grows, increasing fee income for CEXs, thereby aligning incentives for mutual success. On the other hand, Tether's product plays a role in facilitating the functioning of crypto capital markets, which inherently seeks to disintermediate TradFi banks. However, traditional banks are not supportive of crypto and view Tether as a threat to their existence, Hayes said. Consequently, their incentives are not aligned with Tether's success, and neither are those of regulators aligned with the success of Tether.