Guy Young: Ethena - USDe Synthetic Dollar via Delta-Neutral Staked Ethereum Hedging

Stablecoins represent a safe haven against crypto’s volatility, allowing participants to remain in the market, without off-ramping to fiat. While the major stablecoins are centrally issued (e.g. USDT, USDC, BUSD), there is a pressing need for an algorithmic variant or a synthetic dollar asset. (DAI is somewhere in between since approximately 50% of its collateral is USDC). After Luna’s collapse, many jumped to point out its design flaws, yet such a concept would be crucial for crypto’s decentralisation and self-sustainability. Arthur Hayes proposed an interesting concept of NAKA synthetic dollar (NUSD), backed by Bitcoin and its inverse perpetual swap short. However, yield generation on $BTC is significantly lower than that of $ETH. A sustainable yield would help balance the cases in which funding rates would be negative (a minority in crypto). We were joined by Guy Young, co-founder of Ethena, to discuss the stablecoin landscape and their synthetic eUSD, backed by staked ETH and its inverse perpetual swap. Topics covered in this episode:Guy’s background and founding EthenaThe history of stablecoinsThe stablecoin trilemma and transparencyeUSD synthetic dollar mechanicsEthena’s insurance fund and hedgingMinimising the impact of depeggingLeveraging centralised liquidity while maintaining self custody through MPCUser experienceRisk factorsCEX vs. DEX: liquidity, infrastructure, UXThe potential of fixed return ratesSupply & rates equilibrium Episode links:Guy Young on TwitterEthena Labs on TwitterArthur Hayes' article proposing the Naka synthetic dollar This episode is hosted by Felix Lutsch. Show notes and listening options: epicenter.tv/518