What is USDe? A comprehensive analysis of Ethena's synthetic USD stablecoin mechanism and potential

In the rapidly changing cryptocurrency market, stablecoins are the cornerstone connecting the crypto world with traditional finance. USDe, a synthetic USD stablecoin launched by Ethena Labs in 2024, has quickly risen to become the third-largest stablecoin in the industry with its disruptive “Delta Neutral Hedging” mechanism and a market cap reaching billions of dollars. It not only provides a value storage method pegged to the US dollar but also, through its staked token sUSDe, offers holders substantial native yields, opening a new narrative of “Internet bonds.”

Core Innovation of USDe: Delta Neutral Stability Mechanism Without Fiat

USDe is fundamentally an innovation in stablecoin design philosophy. It moves away from reliance on traditional banking systems and fiat reserves, instead maintaining its peg to 1 USD through a fully crypto-native approach. Its core is a sophisticated financial strategy called “Delta Neutral Hedging.” Simply put, when users deposit ETH, stETH, and other crypto assets to mint USDe, the protocol not only holds these assets but also opens equivalent ETH perpetual futures short positions on centralized derivatives exchanges.

The brilliance of this design lies in its ability to offset the profit and loss of the spot holdings with the inverse profit and loss of the derivatives short positions, regardless of how violently ETH prices fluctuate. This keeps the overall net asset exposure close to zero, thereby maintaining USDe’s price stability.

Comparing Traditional Stablecoins: USDe vs. Mainstream Stablecoins

USDe’s rise challenges the market dominance of fiat-collateralized stablecoins like USDT and USDC. Their fundamental differences stem from the underlying collateral and stability mechanisms.

The table below clearly contrasts USDe with traditional stablecoins:

Through this mechanism, USDe aims to find a new balance among decentralization, stability, and capital efficiency, with its greatest appeal being the ability to generate yields for the stablecoin itself.

Market Performance: From Rapid Growth to Top Three

USDe’s growth trajectory is remarkable. Its circulating supply once surged by 42% within a month, and its market cap briefly exceeded $12.4 billion, surpassing established stablecoins like DAI to rank third globally. This was driven by its unique yield model attracting many users seeking crypto-native returns. However, its development has not been without challenges. During a sharp market fluctuation in October 2025, USDe experienced a significant decoupling, with prices on some decentralized exchanges dropping to $0.62, but it quickly regained its peg.

This event also revealed the stress tests its model must endure under extreme market pressure. As of late December 2025, USDe’s price stabilized around $1, with a circulating market cap of approximately $6.299 billion.

Yields and Risks: The Double-Edged Sword of High APY

USDe’s yield story is primarily realized through its staked version, sUSDe. Users staking USDe receive sUSDe, which automatically earns protocol yields. Historically, the annual percentage yield (APY) has generally remained above 5%, sometimes approaching 20% under certain market conditions. The yields mainly come from two sources: staking rewards of the underlying collateral (like stETH) and funding rates of perpetual contracts in the derivatives market (when the market is bullish, longs pay shorts).

However, high yields inevitably come with high risks. The sustainability of the USDe model heavily depends on several key market conditions:

Funding Rate Risk: When market sentiment turns extremely pessimistic, perpetual funding rates can turn negative, meaning the protocol must pay fees to maintain short positions, which can erode yields or deplete insurance reserves.

Counterparty and Centralization Risks: The entire hedging strategy relies on the proper functioning of major centralized exchanges. Any technical failure, liquidity crisis, or regulatory issue could jeopardize the hedging positions.

Regulatory Uncertainty: Globally, regulations on crypto derivatives and interest-bearing stablecoins are still evolving, posing potential policy risks.

ENA Governance Token and Ecosystem Future

ENA is the governance token of the Ethena protocol. Currently, its core value capture mechanism—the “Fee Switch”—has not been fully activated. This mechanism requires certain preconditions, such as USDe reaching a supply threshold, protocol revenue exceeding $250 million (which has been achieved), and listing on major exchanges. Once the “Fee Switch” is fully enabled, ENA holders will be able to share a portion of the protocol’s revenue, transforming it from a governance token into an interest-bearing asset with actual cash flow support. This is a key market expectation for ENA’s future value.

Managing USDe on Gate Exchange

For users seeking exposure to USDe, Gate offers a convenient channel. As a leading global trading platform, Gate has listed USDe trading pairs, allowing users to trade USDe spot directly on the platform. The advantages of trading on Gate include its deep liquidity and robust security, providing important safeguards for trading complex assets like USDe.

Before participating, we recommend:

• Understanding the mechanism: Fully grasp the Delta Neutral Hedging principle and its potential risks.
• Monitoring the market: Keep an eye on overall crypto market sentiment and ETH perpetual contract funding rates, which directly impact USDe yields.
• Assessing risks: Treat USDe as an innovative crypto asset combining stablecoin attributes and yield features, and allocate according to your risk tolerance.

As the Ethena protocol’s “Fee Switch” approaches activation, ENA holders will have their first opportunity to share in the protocol’s substantial revenue. Meanwhile, the protocol is actively expanding multi-chain ecosystems and institutional partnerships to strengthen its market position. Whether USDe’s model can continue to demonstrate robustness across different market cycles will be crucial in its evolution from a “successful experiment” to “financial infrastructure.”