Ethena ($ENA) just dropped a bomb on Twitter – they're supercharging their synthetic dollar (USDe) with Bitcoin ($BTC) in addition to Ethereum ($ETH )! This bold move promises a "safer" USDe.
Ethena uses a strategy called "cash-and-carry trade" where they short futures contracts (betting on price decrease) and pocket funding rates to generate yield for USDe holders (currently 37% annual yield). Previously, they only used ETH futures. Now, they'll include BTC futures as well. This addition of Bitcoin is claimed to increase stability (safety) of USDe and allow for further growth (issuance of more USDe tokens).
Hold up! Ever wondered what's the real magic behind USDe? 🤔💻Let's spill the tea!
Imagine USDe as a special kind of digital dollar. It's supposed to always be worth $1, just like a regular dollar. To create USDe, Ethena uses two main strategies (simplified):
(1) They take your real money (like other stablecoins) and buy Bitcoin (BTC) with it. This Bitcoin acts as collateral or backing for the USDe you receive.
(2) At the same time, they enter into a futures contract where they anticipate a decrease in the price of Bitcoin (short position).
This two-step process helps keep USDe stable:
- If the price of Bitcoin goes up, it doesn't matter. Ethena still has the Bitcoin they bought, which maintains the value of USDe.
- If the price of Bitcoin goes down, Ethena profits from their futures contract (short position). This profit helps offset any potential losses from the decrease in Bitcoin's price, further stabilizing USDe.
The benefit for you?
- You get USDe, which is supposed to be a stable digital dollar.
- Ethena shares some of the profits they generate from their Bitcoin futures contracts with you, giving you a potential yield.
DYOR!
