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Reported by The Block, Ethena, the protocol behind the USDe digital dollar, now makes up almost 5% of global ether perpetual futures open interest, according to the platform’s data dashboard.
USDe is a token tied to the value of a dollar that offers a high yield. While it has been described as a stablecoin, the team avoids the use of the term — instead preferring the term a “synthetic dollar. Ethena’s USDe is essentially a tokenized representation of the cash and carry arbitrage present in crypto markets. As such, it generates yield by shorting ether futures and staking ether.
The project's advertised yields of up to 27% have enticed users to mint around $420 million USDe tokens so far. Though the project initially paid out only 15% of its first-week yield to holders, it quickly reversed course following backlash, paying out the entire 24% yield generated by its assets instead of reserving funds for core team operations.
This growing market share has raised concerns that, as it rises in market share, the yield of the protocol could fall considerably. Yet Ethena’s founder Guy Young, who goes by the pseudonym Leptokurtic, said he’s not concerned at these levels, but that the protocol might struggle at a higher market share.
Young said a self-correcting mechanism comes into play if the yield on USDe falls significantly. He explained that such a scenario would see market participants opt out of staking their USDe. If they do that, he said, this would allow the funding rate to revert to a new equilibrium.
He added that a more concerning situation would be if the protocol made up around 30% to 40% of ether perpetual futures open interest. "That's when a product like Ethena starts to come into more serious capacity constraints," he added.
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