Rewards Mechanism

How sUSDe accrues discretionary rewards

Context

Users are able to accrue fully discretionary incentive rewards by staking their USDe and receiving sUSDe atomically in return.

Once users stake their USDe for sUSDe, they begin to accrue rewards, to the extent provided, without any further action or cost. USDe that is staked is not rehypothecated in any way to generate returns.

Overview

The amount of sUSDe a user receives is determined by how much USDe was transferred as well as when it was transferred. Ethena's sUSDe utilizes a reward-bearing "Token Vault" mechanism, the same as Rocketpool's rETH or Binance's WBETH.

The protocol does not rehypothecate, lend out, or otherwise utilize deposited USDe for any purpose. There is no need for any such action, as the USDe backing mechanic inherently creates value in the system.

This mechanism simply enables Ethena to provide rewards to ecosystem participants without users having to do any action to "earn" it. The USDe value of sUSDe grows on its own. When a user unstakes his or her USDe, the user receives an amount of USDe equal to the initial amount staked plus their share of rewards deposited in the staking contract as rewards while that user's USDe was staked, as reflected in the USDe value increase of sUSDe.

Important Notes

• The amount of sUSDe you receive when you stake USDe is likely to be less in number, but valued at the equivalent amount of USDe. This is a result of the "Token Vault" mechanism and the ratio defined below in the worked example.

• The value of USDe will remain worth the market trading price of USDe while sUSDe will grow in USDe value as the protocol (via a subsidiary of the Ethena Foundation) deposits discretionary rewards in the staking contract.

• If the protocol were to suffer a loss due to funding or another reason, Ethena's Reserve Fund is intended to bear the cost, rather than the staking contract.

sUSDe can only accrue positive or flat rewards while staking USDe; periods of negative protocol revenue are not passed on to sUSDe. During such periods, no discretionary rewards will be provided.

Calculation & Worked Example

sUSDe:USDe ratio = (total sUSDe supply) / (total USDe staked + total protocol revenue deposited in USDe terms)@c

sUSDe Rewards Mechanism

The Ethena Foundation, via a subsidiary, calculates APY weekly as part of internal accounting when distributing rewards to the StakingRewardsDistributor contract.

To prevent lumpy distributions which people can arbitrage, and because its not currently feasible for Ethena to distribute more frequently than weekly, sUSDe rewards are distributed the week after the period to which they relate, in multiple smaller payments throughout the week. In that period, the USDe supply can increase or decrease, as can the % of USDe supply staked.

This can cause distortions between the APY published, and a number that's just based on the most recent 8 hourly payment to sUSDe, as seen on some data aggregator sites.

Ethena's APY is also annualized with weekly compounding reflecting the compounding interval users actually experience.