KEYTAKEAWAYS
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Ethena’s USDe is a synthetic dollar backed by crypto collateral and perpetual futures hedges, offering users a stablecoin that also generates yield.
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In less than a year, USDe supply surpassed $12 billion, with integrations across DeFi, Binance, and a compliant TradFi version (USDtb) driving rapid adoption.
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Despite its success, Ethena faces risks tied to funding rates, centralization, and looming regulation, raising the question of whether stablecoins should evolve into savings assets.
CONTENT
FROM THE OLD STABLECOIN PARADIGM TO ETHENA’S RISE
Stablecoins have become essential infrastructure for crypto. Tether and USDC dominate, with more than $160 billion in circulation, effectively anchoring the industry. But their design remains that of a “bank IOU,” backed by custodial banks and short-term U.S. treasuries. For users, this means security depends on the dollar system itself. For issuers, it means heavier regulation and higher compliance costs.
This model earned trust early on, but its limits are increasingly clear. Access is not equal worldwide—many regions struggle to use bank-backed stablecoins—and regulators in the U.S. and Europe are demanding more disclosure and tighter controls.
Ethena set out to challenge this model. Its product, USDe, does not rely on fiat reserves. Instead, it uses crypto collateral and perpetual futures hedges to create a synthetic dollar. Users can stake USDe into sUSDe, which generates yield from staking rewards, funding rates, and stable asset interest. That turns the stablecoin into both a unit of account and a savings asset.
Founder Guy Young, a veteran of traditional finance, saw the limits of bank reliance. He describes Ethena’s goal as building an “internet native savings dollar.” Within less than a year, USDe supply surged past $12 billion, making it one of the fastest-growing stablecoins in history. Whether praised or criticized, Ethena has pushed the industry to ask a sharper question: should stablecoins simply hold their peg, or also deliver yield?
MECHANISM AND OPERATIONS: A SYNTHETIC DOLLAR POWERED BY HEDGING
Ethena’s model works across three layers.
First is collateral. Users mint USDe using ETH, BTC, liquid staking tokens (LSTs), or stablecoins. For volatile assets, Ethena opens equal-sized short perpetuals across multiple exchanges, keeping the overall position delta neutral. Stablecoin collateral requires no hedge and is used for reserves or low-risk allocation.
Second is yield. In crypto derivatives markets, long demand usually outweighs shorts. This gives short positions steady funding payments and basis spreads. Ethena captures that revenue, adds staking rewards and stablecoin interest, and distributes it to sUSDe holders. In early 2024, favorable conditions and token incentives drove yields as high as 30–60% APR. Later, yields normalized to 8–20%, but the proof was clear: a yield-bearing stablecoin is possible.
Third is risk management. Ethena spreads hedges across exchanges, uses independent custodians for collateral, and maintains a reserve fund. The team has claimed positions carry “no liquidation risk” because they use no leverage. Analysts counter that if LSTs depeg from ETH or if negative funding persists, stress could build. In extreme cases, margin shortfalls could still trigger liquidations. Ethena, in other words, turns real market volatility into yield—but stays exposed to the structure of those markets.
The advantage is that revenue is tied to real activity, not artificial subsidies or circular token schemes. Unlike Terra’s UST, which collapsed in 2022, USDe’s yield comes from existing markets. That makes it more credible. Yet it remains vulnerable to cycles: in a prolonged bear market with negative funding rates, the same design could become a drag.
GROWTH AND EXPANSION: FROM DEFI TO CEFI TO TRADFI
Ethena’s rise is not only about yield. Its growth strategy has unfolded across different layers of the industry.
In DeFi, USDe quickly found traction. Curve provided liquidity pools, Pendle enabled yield splitting, and lending protocols started to accept USDe and sUSDe as collateral. This gave the asset real utility across strategies and reinforced its stickiness in decentralized finance.
In CeFi, Ethena landed a breakthrough. In September 2025, Binance integrated USDe across its platform. The exchange listed USDe pairs, allowed it as futures margin, and preserved its built-in yield. For Binance’s 280 million users, it meant instant access to a yield-bearing dollar. For Ethena, it marked the shift from a niche DeFi experiment to a mainstream product almost overnight.
In TradFi, Ethena launched USDtb, a version backed by short-term U.S. treasuries, tailored for enterprises and institutions. This dual-track approach lets Ethena serve both sides: USDe for crypto-native adoption and USDtb for regulated capital. By bridging decentralized and traditional markets, Ethena aims to grow while hedging regulatory risk.
By September 2025, USDe supply had exceeded $12 billion, with nearly half staked as sUSDe. Data from Token Terminal showed weekly protocol revenue above $13 million, with cumulative income over $500 million. As a base layer in DeFi, a savings option in CeFi, and a compliance product in TradFi, Ethena is building network effects at remarkable speed. Compared to USDT and USDC—still passive IOUs—Ethena presents a more active, yield-driven alternative.
RISKS, DEBATES, AND FUTURE TURNING POINTS
Success has not silenced doubts.
Market risk comes first. Ethena’s model relies on funding rates and staking rewards. If funding turns negative for long, revenue could collapse. The reserve fund buys time but cannot cover structural losses. A sharp drop in collateral while hedges lose money could also hit USDe’s peg.
Centralization risk is next. Despite its DeFi label, Ethena depends on centralized elements—custodians, trading accounts, mint and redeem permissions. Users must trust the team and partners. Young himself has said Ethena is not fully decentralized, prioritizing execution instead. That makes the system faster, but raises concerns about censorship resistance and governance concentration.
Regulation is another challenge. As USDe takes on the role of a savings account for millions, it is bound to draw closer scrutiny. U.S. and European frameworks are tightening, with heavier disclosure and capital demands. Ethena’s Swiss foundation and USDtb help, but policies can shift quickly.
Finally comes narrative risk. Early growth was fueled by high yields and token incentives. Long-term resilience will depend on Ethena’s ability to hold its peg and sustain trust through both market cycles and regulatory pressure. If it succeeds, it could reshape the stablecoin landscape. If not, it may join the list of cautionary tales.
Ultimately, Ethena is not only launching a new stablecoin. It is posing a bigger question: should stablecoins remain a digital mirror of the U.S. dollar, or evolve into savings assets for the internet age? The answer is not clear yet, but Ethena has already put the debate at the center of crypto.
