Ethena’s USDe stablecoin is currently showing an arbitrage opportunity due to a disparity between the staked price and the free token’s trading price. USDe aims to provide a more intuitive way of trading and locking in gains within Ethena’s DeFi ecosystem. Despite the arbitrage opportunity, there is no major cause for concern currently, but the situation is being closely monitored. USDe has been one of the fastest-growing stablecoins in recent weeks, with Ethena achieving a supply of 2 billion faster than any other stablecoin protocol.
Staked USDe (sUSDe) is currently trading at a discount of over 1% compared to its holdings, while USDe continues to trade around the $1 par value. The lack of fear, uncertainty, and doubt (FUD) or commotion on social media about Ethena indicates that there may not be any immediate issues. However, the expansion of USDe supply could signal a potential imbalance within the Ethena protocol and other liquidity hubs. The main focus of Ethena is to source the best yields, primarily through ETH staking, and distribute profits to its holders. Any fluctuations in USDe could cause concern due to its fully algorithmic nature and lack of asset backing.
In the short term, the disparity in staked USDe is primarily leading to buying as traders take advantage of the arbitrage opportunity. However, traders must wait a week to withdraw staked USDe, and in the event of a bank run, Ethena’s smart contracts will gradually increase the cooldown period to a maximum of 90 days. As the popularity of USDe grows, there is limited liquidity available to swap between the staked and unstaked versions, with a total of $3.65 billion USDe spread across various DeFi protocols. Additionally, USDe can now be used as collateral for trading perpetual futures on certain derivatives exchanges, further solidifying its position in the market.
USDe distinguishes itself from other stablecoins by relying entirely on decentralized pairs for trading, with most transactions occurring on Uniswap V3 against USDT and on Curve against FRAX. The stablecoin is not generated through ENA tokens but hedges Ethereum-based market fluctuations to avoid a potential death spiral for the protocol. However, Ethena’s model may struggle under bearish market conditions, as seen with the recent de-pegging of staked USDe coinciding with an ETH market correction. In such scenarios, Ethena may face challenges in covering negative funding rates and maintaining investor confidence, with the long cooldown period for USDe exacerbating the situation.
One concern for Ethena is that users are holding unstaked USDe to potentially receive a future airdrop, which is currently a rumor. This setup provides an additional layer of security for the protocol, but on-chain research suggests that only a limited number of addresses can cash out without issues, potentially leading to losses for many investors. Despite these challenges, Ethena has seen success during bull markets, but the recent de-pegging of USDe highlights potential market strains in the event of a liquidation cascade. As the situation continues to evolve, it is essential for investors and traders to carefully monitor the developments within Ethena’s ecosystem.