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Ethena Labs founder explains USDe stability amid high profit concerns

Ethena Labs founder explains USDe’s stability amid high profit concerns. 🌐📉 What are the key points of this explanation? 🤔💼 Stay tuned for more on this important issue!

Date: 2024-02-23 Author: Łukasz Michałek
Ethena Labs founder explains USDe stability amid high profit concerns

Guy Young, founder of Ethena Labs, in an exclusive interview with Cointelegraph on February 22, said that initial concerns about the viability of stablecoin USDe are a natural sign of a maturing market recovering from the collapse of the Terra-LUNA ecosystem.

“The immediate reference to what we saw from Terra-Luna was simply a reflex reaction that people had to the profit itself…. It’s right that people reacted this way, because we should approach this with skepticism and try to determine whether [the protocols] are fragile to begin with, rather than letting them grow too quickly, if that’s what they are.”

Ethena Labs ‘ Stable Coin USDe raised widespread concerns in the cryptocurrency community after launching on the public mainnet on February 19. An Ethereum-based synthetic dollar, USDe currently offers a 27.6% annual percentage yield(APY), according to Ethena Labs‘ website.

the27% yield raised concerns about the economic sustainability of the protocol, as it was significantly higher than the 20% yield offered by the Anchor protocol on UST Terra before the May 2022 collapse, which caused tens of billions of dollars in value to be lost in a matter of days.

Unlike USDe, the Anchor protocol’s rate of return was completely artificial, with no sustainable mechanism for generating profit, noted Young of Ethena Labs. He said:

“The most important aspect we are trying to convey is that Anchor’s rate of return was simply made up. It was simply venture capital firms putting money into Anchor and paying a rate of return that came out of nowhere.”

In contrast, the USD yield from Ethena Labs is publicly verifiable. Young told Cointelegraph that the synthetic dollar’s profitability is generated through rate returns and short positions in Ether futures.

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According to Jae Sik Choi, an analyst at Greythorn Capital, the artificially high return of the Anchor Protocol was unsustainable, in contrast to the dynamic yield promised by USDe:

“We saw that Anchor’s actual rate of return was actually ~5.81%, while it paid out 19.45%, which is a disaster because the rate of return the product supports is lower than what it pays out…. There is no question of the ‘risk-free’ returns that were promoted in Anchor, because the rate of return is clearly defined, and we know where it comes from (stETH futures).”

USDe from Ethena Labs is not the only product promising double-digit returns. According to the Pendle website, some staking pools on Pendle Finance, such as the ezETH pool, offer a fixed rate of return of 41% per year(APY) for the Etheru bet.

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Łukasz Michałek
Łukasz Michałek
Founder of the rapidly developing cryptocurrency channel "Biblia Kryptowalut" on YouTube. He also co-creates the Arena Trading group with Marek. Łukasz is fascinated and passionate about blockchain technology and cryptocurrencies, which constitute the central element of his activity in the cryptocurrency industry.
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