Preface
Stablecoins play a crucial role in the cryptocurrency market, with stablecoins like USDT and USDC playing a key role in reducing market volatility and bridging the gap between fiat currency and cryptocurrency. However, most stablecoins rely on traditional banking systems and a single centralized issuer, which exposes them to centralization risks and scalability limitations. To address these challenges, Ethena has introduced USDe, a new synthetic dollar asset designed to provide a decentralized and highly scalable solution.
Background and Operation Mechanism of USDe
USDe is a newly launched synthetic USD stablecoin by Ethena Labs, inspired by the concept proposed by Arthur Hayes, the founder of BitMEX. In his article ‘Dust on Crust’ written in 2023, he mentioned the design concept of a ‘Satoshi-backed USD’ supported by BTC spot longs and futures shorts. Ethena Labs turned this concept into reality but chose ETH as the primary underlying asset for spot and futures open positions, resulting in the launch of USDe.
As a synthetic Stable Coin, USDe aims to provide innovative solutions for the field of Decentralized Finance (DeFi), overcoming the issues of traditional Stable Coins relying on centralized institutions and scalability. Through Delta Hedging strategy and mint-redemption mechanism, USDe achieves stability pegged to the US dollar at a 1:1 ratio. Users can mint USDe by collateralizing ETH or pledging liquidity tokens, while the Delta neutral strategy ensures that the value fluctuations of the collateral do not affect the stability of USDe. According to the data from ETH Scan, the synthetic USD USDe issuance by Ethena Labs has reached a total of 2,542,904,486 coins at the time of writing.
![]()
How does USDe work
![]()
Minting and Redemption
Minting and redeeming USDe are the two core processes of the Ethena platform, which determine the mechanisms for opening and closing positions. Users can create new USDe by providing collateral, and they can use ETH, BTC, USDT, and stETH as collateral for minting. Ethena’s user interface and API support users who have been authenticated through the allowlist to mint and redeem USDe. In the future, SOL will also be added as a underlying reserve asset. During the minting process, users do not need over-collateralization. They only need to pay transaction fees and gas fees other than collateral. Ethena’s minting process aims to minimize slippage and ensure transparency. Users must confirm the minting price, including the reserved slippage range, and the collateral will be used to automatically open short perpetual positions.
(Although currently only Allowlist users can directly mint USDe through the protocol, any cryptocurrency investor can obtain USDe through external exchanges such as Curve, Decentralization exchange / Centralized exchange.)
During the redemption process, Ethena users only need to send synthetic dollar assets to the smart contract address and use atomic swaps to return the corresponding Collateral. This process does not require full deduction of the original Collateral and allows users to choose partial or full redemption, thereby enhancing flexibility and convenience.
Mortgage and Liquidation
Although the collateral of USDe is mainstream Cryptocurrency, ordinary users cannot directly deposit ETH or BTC to mint USDe at present. They can only purchase a series of Stable Coin assets (such as USDT, USDC, DAI, etc.) through Decentralized exchanges / Centralized exchanges like Curve to purchase USDe, which can avoid liquidation risks.
For Allowlist users (usually institutions, exchanges, and Large Investors), they can use liquid staking tokens, such as stETH, to mint USD 01928374656574839201. These Allowlist users need to bear the liquidation risk, such as insufficient margin, expanded collateral discounts, and sharp market fluctuations, all of which may cause liquidation risk. When liquidation risk occurs, additional collateral delegation, asset transfer, and recursive collateralization can be adopted to hedge the strategy, effectively manage liquidation risk, protect user assets, and ensure the stability of USD 01928374656574839201.
It should be noted that Ethena is not a fully Decentralization product, but is supported by a centralized asset management team that operates 24 hours a day and has signed cooperation protocols with major exchanges, so Ethena explicitly states in official documents that in case of liquidation risk, the asset management team will intervene manually to drop the risk.
![]()
(Source: Ethena official website, Collateral list)
Source of Income
The mechanism of the Ethena protocol itself enables USDe to have two sources of income:
- For pledgers (including individual investors, institutions, and exchange users)
- Passive Benefits of stake:
Users (including individual investors, institutions, exchange users, etc.) earn passive income through staking LST (such as stETH). The income is denominated in ETH, and staked ETH generates rewards from the Blockchain network. These rewards primarily apply to direct staking of ETH. However, if other liquid staking tokens (such as stETH) are used, the income will also be denominated in ETH, reflecting the network rewards generated by the underlying staked ETH. This includes inflation at the consensus layer, Money Laundering at the execution layer, and MEV (Maximizing Extractable Value). These earnings accumulate over time and are not directly distributed to holders. Instead, they empower and enhance the value potential of sUSD, thereby influencing its market performance.
- For holders (users holding USDe)
Another source of income for USDe comes from the funding rate of Perptual Futures. When there is an increase in leverage demand for a certain asset in the market, traders holding long positions need to pay the funding rate to traders holding short positions. The fluctuation of this spread trading and funding rate makes the income somewhat uncertain, but during a Bull Market, these profits usually increase significantly.
The total revenue of USDe comes from loan-to-value and market leverage demand. Both of these sources of income are variable and can be further increased in the longs market. Only users who choose to pledge USDe can obtain these revenues, which increases the actual rewards that can be allocated to the pledgers.
In summary, the revenue source of USDe is not only reflected in traditional stake returns, but also through multiple ways such as market demand and funding rate, making it an attractive investment choice.
![]()
(Source: Ethena Documentation)
![]()
(Source: Ethena notion)
Main Functions and Features of USDe
- Stability Mechanism:
USDe is designed to be pegged to the US dollar at a 1:1 ratio, maintaining its stability through Delta Hedging strategy and mint-redemption mechanism, which ensures the value of USDe remains stable in market Fluctuation, reducing the risks faced by users.
- Decentralization：
Unlike many traditional stablecoins, USDe combines centralization and Decentralization, without a single custodian, meaning users do not have to rely on a centralized issuer, enhancing its resistance to censorship and security.
- Scalability:
USDe is designed to achieve efficient expansion without the need for over-collateralization, and by combining the Spot and derivative markets, USDe can effectively respond to market demand changes while maintaining stable value.
- Profit Generation:
When users stake USDe, they can earn additional income. USDe provides users with multiple sources of income through participating in Ethereum stake and derivative commodity trading, enhancing its attractiveness.
- Transparency and Verifiability:
The operation of USDe is based on Blockchain technology, and users can verify Collateral and transaction records at any time. Transparency can effectively enhance users’ trust in USDe and ensure the authenticity of its asset support.
- Multifunctional Application:
USDe can not only be used as a Medium of Exchange, but also for various Financial Services such as lending and remittance. Its stability makes it an ideal choice for investors to counter market fluctuations and also provides important support for the decentralized financial ecosystem.
USDe Advantages
With its unique trading mechanism, USDe provides functionalities and utilities that most other USD-pegged assets in the market lack. Unlike stablecoins that rely on centralized custodial institutions such as USDT and USDC to support the USD, USDe adopts a Decentralization OES custodial system. This approach eliminates the risk of a single point of failure and increases transparency. As an asset resistant to censorship, USDe does not rely on traditional banking infrastructure to control the issuance of USD. Instead, it stores on-chain Collateral through a 24-hour auditable programmatic custodial account solution. This structure enhances the security and accessibility of the Collateral that supports USDe.
Compared with algorithmic stablecoins, USDe also exhibits significant advantages. Its biggest feature is that it does not require over-collateralization. Stablecoins like DAI that require over-collateralization demand users to provide collateral worth 150% or even higher to ensure its stability. Such high collateral requirements are not feasible for many users, but USDe avoids high barriers and complexity through its unique hooking mechanism.
Due to the peg maintenance mechanism of USDe, it can operate normally without cumbersome over-collateralization, making USDe highly scalable and an important asset for trading and store of value in the Decentralization financial ecosystem.
![]()
![]()
(Summary statistics of annual interest rates of ETH, Lido, Mantle, and Binance as of April 2024 since inception)
![]()
(Implied protocol return during key market events in the past)
New Revenue Model for USD
USDe is not only a stable and innovative synthetic USD stablecoin, but also provides users with multiple flexible and efficient earning models, suitable for investors with different risk preferences and asset management needs. The following will introduce the three earning models of USDe: USDe Mining, USDe Simple Earn, and USDe Flexible Investment, helping you easily increase your assets value.
USD and Mining
USDe Mining is gate’s on-chain stake product, allowing users to stake USDE and delegate to the validators on the Ethena network through gate, making it easy for users to earn real on-chain income. The highest annualized yield across the network can reach up to 20%!
- USDe Mining Staking Rules
During the period from 00:00 to 23:59 (UTC) daily, stake, dividends will be distributed on D+2 after staking.
Minimum stake amount per transaction: 0.1 USDE
Product stake limit: unlimited
Maximum daily staking amount: 100,000 USDE
- USDe Mining redemption rules
USDE holder can redeem USDE at any time. It will be credited to your account on D+7 after you submit the redemption application.
Minimum single redemption amount: 0.1 USDE
Maximum daily redemption amount: 100,000 USDE
- USDe Mining Payout Method
D-day pledge, interest calculation starts on D+1, dividend distribution on D+2.
USDe Simple Earn
USDe Simple Earn is a current financial product that matches users with idle assets and borrowing needs. After users apply for Simple Earn, the system will determine whether the USDE lending Inrerest Rate and actual borrowing demand are successful and the Inrerest Rate for that hour based on the user’s settings every hour. Successful lending will result in hourly Interest earnings, with an additional annual bonus pool of one million to help!
- Million Extra Annual Bonus Pool: In addition to the instant annualized rate of the lending market, gate provides a million bonus pool to enhance your USDE additional annualized rate!
- Unified account Margin: Simple Earn USDE assets can be used as a unified account Margin, one-click activation, no need to transfer accounts anymore!
- Flexible management of idle assets: deposit and withdraw at any time, supporting anytime purchase and redemption, flexibly optimizing asset management.
- Support one-click automatic coin earning: at fixed times of 2:30 (UTC) and 15:30 (UTC) daily, automatically use idle USDE funds in SpotWallet to subscribe to Simple Earn and earn current income.
USDe Active Currency Financial Management
Huobi Earn is a product that allows users to earn income by holding corresponding assets, with 0 fees, no need for Lock-up Position, only registration required, and can be sold or withdrawn at any time. Interest and earnings are calculated and distributed according to user Holdings, and the product will not be automatically reinvested upon maturity.
Conclusion
Overall, USDe has brought a stable and efficient synthetic USD stablecoin solution to the market through its Decentralization architecture and innovative Delta Hedging mechanism. This makes it more censorship resistant and scalable in the Decentralized Finance ecosystem, and an ideal choice to hedge against market fluctuations.
In addition, USDe not only provides a stable store of value function, but also brings diversified investment product choices to investors. Through flexible investment schemes such as USDe Mining, Simple Earn, users can easily earn extra income, enjoy passive income with daily dividends, and flexibly manage idle assets. The design of these investment products not only enhances the attractiveness of USDe, but also helps users achieve wealth appreciation in stable asset management.
With the rapid development of the Decentralized Finance market, USDe provides a stable, secure, and versatile choice for global investors, offering strong support for the financial management needs in the Decentralization world.
USDe Frequently Asked Questions
- Why does the reference annualized return change, and how is the reference annualized return calculated?
The USDE stake annualized reference rate changes dynamically with the on-chain stake principal and earnings on a daily basis.
- How is my income calculated?
When you stake USD and , the returns will be distributed in the form of USD and , and the amount of returns depends on the amount of USD and you stake. The USD and returns are calculated based on the total reward amount of USD and obtained by all gate validators of the Ethena protocol, and will be affected by the daily market Fluctuation. USD and returns = USD and open interest × daily annualized / 365
- How long does it take to receive the stake rewards?
D-day pledge, interest calculation starts on D+1, dividend distribution on D+2.
- Can I redeem my USDE earnings at any time?
You can redeem USDE income at any time, and USDE will be credited to your account D+7 after redemption initiation.
- Does USDE Mining require identity verification?
Yes, like other gate financial products, participating in USDE Liquiditystake requires completing personal identity verification.
- Does the sub-account support USDE Mining?
Yes, sub-account supports USDE Mining.
- Can I cancel the stake or redeem it after successfully submitting the order?
No, you will not be able to cancel the order after submission. However, you can always stake or redeem your USDE through USDE Mining again.
