The initial concerns around Ethena Labs’ USDe stablecoin yield are a natural sign of a maturing industry recovering from the collapse of the Terra-LUNA ecosystem, Guy Young, the founder of Ethena Labs, told Cointelegraph in an exclusive interview on Feb. 22.
“The immediate reference to what we saw with Terra-Luna was just a knee-jerk reaction which people had to the yield itself…It's right that people responded in the way that they have because we should be responding with skepticism and trying to work out whether [protocols] are fragile in the beginning rather than letting them get too big if they are.”
Ethena’s USDe stablecoin caused widespread concerns in the crypto community after it launched on the public mainnet on Feb. 19. The USDe Ethereum-based synthetic dollar currently offers a 27.6% annual percentage yield (APY), according to Ethena Labs’ homepage.
The 27% yield caused concerns about the protocol’s economic sustainability, as it was considerably higher than the 20% yield offered by Anchor Protocol on Terra’s UST before the algorithmic stablecoin issuer collapsed in May 2022, erasing tens of billions of dollars of value in a few days.
Unlike USDe, the Anchor protocol’s yield was completely artificial, with no sustainable underlying yield-generation mechanism, according to Ethena Labs’ Young. He said:
“The biggest piece we're trying to get across is that Anchor’s yield was just totally made up. It was just venture capital firms putting money into Anchor and then paying out a yield, which came from nowhere.”
In contrast, Ethena Labs’ USD yield is publicly verifiable. Young told Cointelegraph that the synthetic dollar’s yield is generated via staking returns and shorting Ether perpetual futures contracts.
According to Jae Sik Choi, an analyst at Greythorn Capital, Anchor protocol’s artificially inflated yield was unsustainable, unlike the dynamic yield promised by USDe:
“We saw how the real yield on Anchor was actually ~5.81% and it paid out 19.45% which is a cause for disaster as the yield backing the product is less than what it pays out… There is no mention of “risk-free” returns that were promoted in Anchor, as the yield is clearly stipulated and we know where it’s coming from (perpetual futures + stETH).”
Ethena Labs’ USDe isn’t the only product promising double-digit yields. According to Pendle's homepage, some staking pools on Pendle Finance, like the ezETH pool, offer a 41% fixed annual percentage yield (APY) for staked Ether.
