Since their inception, stablecoins have provided a price-stable asset in the otherwise volatile crypto markets. In the growing decentralized finance (DeFi) market, stablecoins are primarily used in trading, lending, and yield farming. Now, a new synthetic dollar, Ethena (USDe), has been launched in an attempt to provide another instrument for DeFi users. 

In this beginner’s guide, we’ll look at what Ethena’s USDe is, how it tackles the stablecoin trilemma issue, where it gets its high yield from, and its benefits and drawbacks. 

What Is USDe?

USDe is a ‘synthetic dollar’ created by Ethena Labs and aims to provide a censorship-resistant, stable, and scalable solution for the digital asset market. It also aims to generate yield from staking ETH and delta hedging derivatives positions.

USDe operates on Ethereum and is backed fully on-chain while being free to compose on other protocols. The solution was launched on the mainnet on February 19, 2024. 

Although USDe has been classified as a stablecoin, the team behind its creation, Ethena Labs, avoids calling it a stablecoin, instead calling it a ‘synthetic dollar’. 

The USDe token is created with the help of the Ethena protocol, built on Ethereum. USDe has an unlimited supply with a current circulating supply of 500,728,124 tokens, according to data on CoinMarketCap. 

Ethena Labs claims that the USDe stablecoin is the first stablecoin that is censorship-resistant, stable, and scalable.

In addition, USDe seeks to address the stablecoin trilemma. The stablecoin trilemma is a concept that touches on the difficulty of stablecoins to simultaneously achieve decentralization, capital efficiency/scalability, and stability, as enhancing one would weaken another. Although some stablecoins do well in one or two areas, finding one that excels in all three areas is hard. 

How Does USDe Tackle the Stablecoin Trilemma?

Decentralized, capital-efficient, and price-stable stablecoins are crucial for the continued success of the DeFi ecosystem. 

This is where USDe comes into play.

It’s designed to address the three key areas other stablecoins have struggled with. 

  • Ethena uses a so-called delta-neutral strategy to ensure USDe stability, helping maintain the value of their portfolio stable in USD terms.
  • To ensure the token is censorship-resistant, all collateral used to back USDe stays with institutional-grade providers. Moreover, no collateral deposits are made to any exchange. This way, the collateral is protected from exposure to exchange failure risk. 
  • By employing the delta-hedging mechanism, USDe can also scale with capital efficiency as it allows for 1:1 collateralization without entirely relying on collateral, which stablecoins typically do.

As a result, USDe is able to address all three aspects of the stablecoin trilemma.  

Where Does USDe’s High Yield Come From?

Besides tackling the stablecoin trilemma, USDe also promises a high yield.

Following its mainnet launch on February 19, the token promised users an annual percentage yield (APY) of 27.6%, sparking questions in the crypto community about where the stablecoin was getting its high yield from.

The company said it can offer a high yield thanks to a mix of returns earned from staking ETH and funding and basis spread earned from delta hedging derivatives positions.

Ethena claims it can pay participants a high yield by combining these two elements. 

Benefits and Drawbacks of USDe

Like all innovations in the crypto sector, the USDe token has both benefits and drawbacks. 


  • A possible solution to the stablecoin trilemma: As a stablecoin that’s created to become capital-efficient, maintain its decentralization, and achieve price stability, USDe easily becomes a potential solution to the stablecoin trilemma challenge faced by traditional stablecoins.
  • Price stability: As a stablecoin, the USDe token is less volatile than regular cryptocurrencies and can be used for everyday transactions and investments. USDe can minimize any price fluctuations thanks to the utilization of the delta-hedging mechanism.
  • Pays a yield: USDe pays holders a yield, enabling token holders to earn investment income on their synthetic dollar holdings. 


  • A range of risks: As part of Ethena Lab’s in-depth explanation of USDe, the company mentions various risks that might be associated with the token, including funding, liquidation, and collateral risks. For example, in terms of funding risk, USDe is exposed to ETH’s price. This means that whenever ETH’s price declines due to market sentiments, the funding rates for ETH short positions can also turn negative and diminish the overall value. 

Is USDe Actually a Stablecoin?

The simple and short answer to whether USDe is a stablecoin, going by its creators, is no. 

Although USDe was first marketed as a stablecoin by Ethena Labs, the creators stopped marketing it as a stablecoin back in October 2023. The company refers to USDe as a synthetic dollar that’s collateralized with short future positions and collateralized crypto assets. 

While USDe is an innovation that seeks to potentially solve the stablecoin trilemma, it’s not free of drawbacks, with the major one being negative funding rates. Still, it’s a crypto asset worth keeping an eye on.