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

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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 Ethena
• The history of stablecoins
• The stablecoin trilemma and transparency
• eUSD synthetic dollar mechanics
• Ethena’s insurance fund and hedging
• Minimising the impact of depegging
• Leveraging centralised liquidity while maintaining self custody through MPC
• User experience
• Risk factors
• CEX vs. DEX: liquidity, infrastructure, UX
• The potential of fixed return rates
• Supply & rates equilibrium

Episode links:

• Guy Young on Twitter
• Ethena Labs on Twitter
• Arthur Hayes' article proposing the Naka synthetic dollar

This episode is hosted by Felix Lutsch. Show notes and listening options: epicenter.tv/518