Scalability

How USDe enables scalability

1. Backing Ratio

USDe is backed at a 1:1 ratio thanks to a delta-neutral strategy, where short BTC, ETH, and SOL futures positions offset any changes in value to the underlying backing assets. Liquid stables, such as USDC, also play a role in improving stability and efficiency, providing more stable backing in volatile conditions.

The result is the most capital-efficient synthetic dollar in the industry.

Other onchain overcollateralized "stablecoins" tend to run minimum collateral ratios of ~150%, with some even higher, requiring more capital to be locked up than the stablecoin it mints. Effective overcollateralization is often over 200%.

While this approach is a good way to ensure stability when using decentralized collateral, the capital inefficiency of doing so means that the stablecoin cannot scale into the billions. The only way to ensure capital efficiency and relative stability using decentralized collateral is to delta hedge any price exposure on trustless crypto collateral.

1. CeFi Liquidity

Unfortunately, decentralized perpetual liquidity isn’t sufficient to allow Ethena to achieve its goal of scaling USDe into the billions. Projects like UXD have tried to solely use decentralized exchanges, but the lack of liquidity severely limited their ability to scale, while others have fallen victim to hacks and exploits of the decentralized exchanges.

With >30x the open interest on perpetual futures on centralized exchanges, a synthetic USD asset that leverages that liquidity has the ability to scale exponentially larger than would be possible on just decentralized exchanges living purely onchain.

However, largely thanks to Hyperliquid, DeFI share of perp open interest is up from 0.6% to start 2024 to 3.1% today.

1. Scalable Backing Assets Base

To further scale, Ethena now uses BTC and SOL as backing assets in addition to ETH and plans to support any crypto asset with a sufficiently liquid derivatives market, subject to Ethena Risk Committee approval via governance. Currently, BTC funding rates mirror those of ETH, with funding being paid to the short side in the range of 7-9% annually on average, with even higher averages for SOL funding rates to date.

BTC, ETH and SOL perpetual futures offer over $65bn of open interest combined into which USDe can hedge, as of January 2025.