Ethena's USDe sees nearly $100 million in redemptions this week in 'stress test' for synthetic dollar

Ethena’s USDe stablecoin, also known as a “synthetic dollar,” experienced nearly $100 million in redemptions over the last few days during a broader market selloff — with bitcoin falling to under $50,000 and ether losing its 2024 gains.

Substantial market turbulence likely triggered these redemptions from users, exerting some pressure on the protocol. On Monday, over $1 billion in leveraged trades were liquidated across centralized exchanges and over $400 million on DeFi protocols — marking one of the largest liquidation events of the year.

Meanwhile, USDe was able to keep its peg to the U.S. dollar. However, its price wobbled slightly, momentarily touching $0.997 before trading back to its apparent $1 mark, The Block’s Ethena Price Page shows. USDe’s current supply is over 3.1 billion tokens—50% higher than its 2 billion supply in April.

USDe redemptions over past two days | Source: Parsec

“On the Ethena side, I can confirm there are zero issues with over $50m of redemptions processed overnight, which is the largest to date,” Ethena founder Guy Young stated on X. "While painful, I hope every stress test like this and others we have been through this year provide additional comfort on the go-forward resilience of the system," Young added.

These $50 million in redemptions were only part of it. According to data from the analytics platform Parsec, $96 million of Ethena’s USDe has been redeemed for its underlying collateral assets since Monday amid the crypto sell-off.

USDe differs from traditional stablecoins in that it uses a mechanism that isn’t dependent on direct fiat or tangible asset backing. Instead, it employs derivative hedging strategies with collateral positions involving ether and bitcoin and an arbitrage system for minting and redeeming to sustain its U.S. dollar peg.

Additionally, USDe utilizes a cash-and-carry strategy to generate yields, which are distributed back to stablecoin holders. This strategy includes tactics such as staking ETH collected from those who mint USDe with Ethereum validators while concurrently shorting an equivalent amount of ether futures.

Previously, Ethena allowed using ETH or liquid staking tokens as collateral for minting USDe. Recently, bitcoin has also been accepted as a collateral option.