What is Ethena (USDe)

Ethena is a DeFi protocol that issues USDe — a synthetic dollar stablecoin backed not by fiat deposits or crypto overcollateralisation, but by a delta-neutral derivatives strategy. Launched in February 2024, USDe became the fastest stablecoin to reach $1B in supply in history, attracting significant attention for its innovative design and for offering holders substantial yields through sUSDe (staked USDe). HOW USDE MAINTAINS ITS PEG USDe's stability mechanism is the delta-neutral hedge: User deposits ETH (or stETH, USDC, BTC). Ethena holds the ETH collateral and simultaneously opens a short perpetual futures position of equivalent ETH value on a centralised exchange. The ETH long (spot) and ETH short (perp) positions cancel each other out — creating a synthetic USD position. If ETH rises 10%, the spot position gains 10% but the short loses 10% — net change is zero. The position is always worth its initial dollar value, maintaining the peg without a central bank. THE SUSDE YIELD: WHERE IT COMES FROM Holders of sUSDe (staked USDe) earn yield from two sources: ETH staking yield: The ETH collateral earns ~3-4% APY from liquid staking (stETH). Funding rate income: The short perp position earns the funding rate when crypto markets are in a positive funding regime (more longs than shorts pay funding to shorts). During bull markets, combined yields have reached 20-35% APY — significantly above risk-free dollar rates. THE NEGATIVE FUNDING RISK The critical risk in Ethena's model: funding rates can turn negative. When markets are bearish or sideways, shorts pay longs — meaning Ethena's short positions lose money instead of earning it. Ethena maintains an insurance fund to cover periods of negative funding. Historical backtesting suggests negative funding episodes are infrequent and short-lived, but a sustained bear market with persistent negative funding could drain reserves. ADDITIONAL RISKS Counterparty risk: Ethena's short positions are held on centralised exchanges (Binance, Bybit, OKX). If these exchanges fail (FTX scenario), the collateral hedging the peg could be at risk. Ethena uses custodians (Copper, Fireblocks) to mitigate direct exchange custody risk. Custodian risk: Collateral is held off-exchange by custodians — introducing their own counterparty risk.

Terms in addition to the Ethena (USDe)

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.