What is USDe?

USDE, introduced by Ethena Labs, is a new synthetic USD stablecoin inspired by the concept proposed by BitMEX founder Arthur Hayes. In his 2023 article “Dust on Crust,” Hayes outlined the idea of a “Satoshi Dollar” supported by a combination of BTC spot long positions and futures short positions. Ethena Labs introduced this concept by selecting ETH as the primary underlying asset for spot and futures positions, ultimately launching USDE.

USDE maintains a 1:1 peg to the US dollar through a delta hedging strategy and a mint-redeem mechanism. It aims to offer a crypto-native, censorship-resistant, scalable, and stable financial solution. Users can mint USDE by collateralizing Ethereum or liquid staking tokens. These collateralized tokens are then hedged via corresponding contracts to offset gains and losses from token price fluctuations, thereby ensuring USDE’s stability. Moreover, the underlying yields from collateral and potential fee income from contract products position USDE as a “bond-like” stablecoin capable of generating income.

According to Etherscan data, as of November 15, 2024, the amount of USDE issued by Ethena Labs has exceeded 3 billion tokens. This article will guide you through common earning strategies for USDE and share how to increase the annual yield of USDE to over 45% through Gate.io.

Note: For more information about USDE mechanisms and risks, please refer to our previous article “What is USDe? Unveiling the multiple earning methods of USDe“

Multiple Earning Methods of USDE

As a stablecoin with built-in yield potential, USDE provides crypto users new earning opportunities through interest-bearing stablecoin strategies. Let’s explore some common ways to generate returns with USDE.

1. Convert to sUSDE for Returns

In Ethena Labs’ design, USDE must be staked as sUSDE to share in the protocol revenue mentioned above. sUSDE earnings primarily come from staking rewards and funding rate arbitrage. Details include:

• Ethereum Staking Rewards: When staking USDE, a portion of the funds is used to stake Ethereum (e.g., stETH). Rewards from Ethereum’s proof-of-stake mechanism flow to sUSDE holders, gradually increasing its value over time.
• Funding Rate Arbitrage and Basis Trading: Ethena employs a delta hedging strategy, utilizing derivatives markets to hedge against the risk of staked assets. Since funding rates in derivatives markets are generally positive, Ethena profits from short positions, providing additional yield to sUSDE holders.

This strategy suits larger transactions better, as users must connect a Web3 wallet to mint sUSDE on the Ethereum mainnet—a process that can incur gas fees of tens of dollars during network congestion. Moreover, the 7-day waiting period for redemptions makes it less ideal for those needing high liquidity. Part of the yield stems from funding rate income, which fluctuates with market conditions. For instance, recent Bitcoin price rallies have led to high contract fee earnings from crypto asset short positions, resulting in an average annualized return of 29% this week. However, looking at longer timeframes, the monthly average return hovers around 16.6%, while the three-month average is approximately 12.8%.

2. Liquidity Mining and Fee Collection

Like other DeFi assets, USDE is used in liquidity pools to enhance market liquidity. Users can earn trading fees and rewards by creating USDE trading pairs with other tokens and providing liquidity on decentralized exchanges (DEXs) or in liquidity pools. These rewards typically come in the form of the platform’s native tokens or as a percentage of transaction fees.

For instance, on Curve and Uniswap V3, USDE is often paired with other stablecoins. DeFiLlama data shows these pairs offer 30-day average returns of 0.17% to 16.54%, primarily on the Ethereum mainnet. However, since yields stem from trading fees and rewards, they fluctuate with trading volume and lack stability. Moreover, pairing with other tokens exposes liquidity providers to impermanent loss.

3. Pendle YT and PT

Pendle is a decentralized asset-splitting protocol that allows users to divide their holdings (including stablecoins) into two components: Principal Token (PT) and Yield Tokens (YT), which can be traded separately. For USDE, Pendle offers a way to split earnings, creating an additional income stream for users.

For example, by depositing USDE to mint PT on Pendle, users can redeem it 1:1 for USDE upon maturity, earning an annualized return of approximately 18.25%. sUSDE returns can reach 20.84%.

YT, representing yield rights, is often volatile and considered a high-risk trading asset. Like in secondary markets, it reflects yield expectations. Users can buy YT when yield expectations (and prices) are low and sell when prices rise. For detailed YT trading strategies, refer to Pendle Documentation.

Pendle offers USDE holders both fixed and floating income options, but the trading mechanism’s complexity comes with a steep learning curve for users.

4. Potential Airdrops

Pendle mentioned earlier also showcases a product called USDE (Karak), which involves strategies for staking USDE on Karak. Like EigenLayer, Karak is a re-staking protocol. Users can earn project points by providing early financial backing, which they may later exchange for tokens during the project’s Token Generation Event (TGE). These potential airdrop rewards offer an additional income stream for USDE holders. However, while other projects also accept USDE as an early-stage incentive asset, the timing of TGE events is often unpredictable, requiring users to wait for extended periods. Moreover, due to project teams’ airdrop rules, the yield from such airdrops can sometimes be disappointingly low.

5. Lending Returns

Many lending protocols now support USDE lending services. Depositing USDE for borrowers generates interest income. According to DefiLlama data, the 30-day average annualized yield for lending protocols ranges from 0.04% to 6.7%.

6. Exchange-Based Financial Products

While on-chain financial strategies offer opportunities, they can be complex and subject to volatile returns. To address this, Ethena Labs is collaborating with multiple centralized exchanges to launch related financial products, aiming to simplify wealth management for exchange users. Currently, exchanges such as Bitmart, Bybit, and Bitget have rolled out these financial products. As of November 15, 2024, the flexible staking annualized yield for USDE on Bitmart is approximately 4% (for deposits exceeding 500 USDE), while Bitget offers a 6% annualized return on 30-day fixed-term investments.

Notably, Gate.io recently launched a comprehensive USDE financial suite (aka the “USDE Bucket“) offering annualized yields of up to 45%. This opportunity is open to users regardless of their investment size. When combined with Gate.io’s “collateralized lending” feature, potential annualized yields could surpass 50%. In the following section, we’ll use Gate.io as a case study to explore its innovative financial strategies and demonstrate how to achieve these exceptionally high annualized returns through its “collateralized lending” functionality.

Gate.io Financial Strategy

Like other exchanges, Gate.io offers flexible financial products, enabling users to stake USDE with a single click and withdraw staked USDE anytime. However, Gate.io stands out by providing higher yields. With a certain amount of USDE staked, users can benefit from a base lending rate (4.38%, subject to market conditions) and an additional bonus of up to 45% provided by Gate.io.

In addition to the “Simple Earn” product, Gate.io also offers a “USDE Staking” program, allowing users to stake USDE and earn genuine on-chain returns through Gate.io. This product has a very low entry threshold, requiring a minimum stake of just 10 USDE. The staking interface is integrated within the app for seamless one-click staking, facilitating asset management.

Notably, when these two USDE programs are active, transaction fees for the USDE/USDT spot trading pair are waived, making it more cost-effective to purchase USDE on Gate.io compared to other exchanges.

Lending and Yield Growth
During the USDE promotion period, Gate.io eliminates transaction fees for USDE/USDT spot trading. This makes Gate.io a more attractive platform for acquiring USDE than other exchanges, offering users a cost-efficient option.

By utilizing the two strategies mentioned above, the annualized return for USDE can easily reach 45%. If combined with the Crypto Loan product, the annualized yield for USDE can exceed 50%. Crypto Loan allows users to pledge idle crypto assets for borrowing, with the borrowed funds available for spot/margin/derivatives trading or earning yields through financial products. The collateral for this product includes traditional idle assets and supports assets in the Simple Earn product as collateral.

This means users can stake assets in Simple Earn to earn a 45% annualized yield and use the generated income to borrow a certain amount of USDT at an interest rate of just 9.50% – 10.29%. The borrowed USDT can then be used to purchase USDE, which can also be deposited into Simple Earn to earn a 45% yield. As the amount of USDE in Simple Earn increases, the user can borrow even more USDT. Under this “circular lending” model, total returns can quickly surpass 50%. However, this approach requires careful management of collateral ratios and comes with liquidation risks inherent to lending products.

Conclusion

In summary, on-chain native USDE staking strategies face limitations due to network fees and redemption periods. While Pendle’s PT and YT trading, lending, and liquidity mining strategies partially mitigate these issues, they introduce their own risk-return trade-offs. Exchange-based financial products offer a more convenient alternative, eliminating excessive network fees and redemption delays. However, these products often have certain restrictions and typically yield lower returns than direct sUSDE staking. Yet, Gate.io’s strategy stands out by offering significantly higher yields than other exchanges, reaching up to 45%. With its collateralized lending products, users can achieve low-risk annualized returns exceeding 50%. Currently, Gate.io provides a comprehensive USDE strategy that excels in terms of risk level, returns, and convenience.

Of course, each strategy carries its own risks, such as protocol and liquidation risks. Readers are encouraged to choose based on their individual risk tolerance!


Disclaimer:
This content is for professional knowledge-sharing purposes only and does not constitute any offer, solicitation, or recommendation. You should always seek independent professional advice before making any investment decisions. Please note that Gate.io may restrict or prohibit some or all services in restricted regions. For more information, please read the User Agreement at: https://www.gate.io/zh/user-agreement.