Update Feb. 20, 1:05 pm UTC: Quotes added from CEO of Kima.
Cryptocurrency investors took to X to express their concern about the staking yield of Ethena Labs’ newly launched stablecoin.
Ethena Labs launched its USDe stablecoin on the public mainnet on Feb. 19, according to an X post from the company’s official page. The USDe Ethereum-based synthetic dollar currently offers a 27.6% annual percentage yield (APY), according to Ethena Labs’ homepage. This is considerably higher than the 20% yield offered by Anchor Protocol on Terra’s UST before the algorithmic stablecoin issuer Terra collapsed in May 2022.
The attractive yield opportunity caused widespread concerns in the crypto community. According to 0xngmi, a pseudonymous DefiLlama code contributor, the real concern is a potential yield inversion, not Ethena’s high stablecoin yield. He wrote:
“When yields invert you start losing money, and the bigger the stablecoin is the more money it loses… Previous projects tried to [close the short positions when yield turned negative], but opening/closing positions has a cost, and that ate into all yield.”
In a subsequent reply to the thread, 0xngmi highlighted that Ethena is “completely different” from Anchor Protocol, which he categorized as a Ponzi scheme.
According to Eitan Katz, the co-founder and CEO of decentralized money transfer protocol Kima, maintaining such high yields will be difficult in a bear market, which might force Ethena to lower its yield in the future. He told Cointelegraph: “[USDe’s] sustainability mostly depends on continuous market growth and the ability to manage risks effectively – and if done right, these can provide stability, although in the crypto industry, it is very unlikely.”
Ethena has reached $297.9 million in total value locked and registered over 4,460 users, according to its homepage. USDe’s market cap rose 20.6% in the past 24 hours to $291.93 million, according to DefiLlama data.
Cointelegraph has approached Ethena Labs for comment.
According to a Feb. 20 X post by Anthony Sassano, angel investor and founder of The Daily Gwei, the investor concern around Ethena’s yield is a healthy sign for the crypto industry. He wrote:
This is very different from the last cycle where people questioning things were the minority and were just told that they were “coping" over not making money on Ponzis like Terra/Anchor/UST. I'm very glad to see lots of people questioning Ethena's design and asking how they can offer things like 20%+ yield and also exploring what all of the underlying risks are.
Ethena Labs announced raising $14 million in funding on Feb. 16, backed by venture capital firm Dragonfly and other investors. The firm also raised $6 million in 2023 from Binance Labs, Gemini, Bybit, Mirana Ventures, OKX Ventures and Deribit to build decentralized finance solutions on Ethereum.
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This is a developing story, and further information will be added as it becomes available.