# Rewards Mechanism Explanation

## Context

Users are able to receive rewards by staking their *USDe* and receiving *sUSDe* atomically in return.

{% hint style="info" %}
Once users stake their *USDe* for *sUSDe*, they begin to accrue rewards without any further action or cost. *USDe* that is staked is not rehypothecated in any way to generate returns.
{% endhint %}

## 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](https://docs.rocketpool.net/guides/staking/overview.html#the-reth-token) or [Binance's WBETH](https://www.binance.com/en/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", reward-bearing 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 deposits rewards in the staking contract daily.
* 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.

{% hint style="info" %}
Users can only receive positive or flat rewards while staking *USDe;* periods of negative protocol revenue are not passed on to *sUSDe*.\
\
Ethena's reserve fund bears associated costs if funding is so negative that it causes negative protocol revenue. 
{% endhint %}

## Calculation & Worked Example

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

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