Ethena USDe Yield Tranches
A new synthetic dollar vault offering a risk-diversified exposure to leveraged Shards or boosted yields
Liberate USDe yield
Introducing USDe Yield Tranches, equipped with Senior and Junior risk diversification experience on top of the Ethena synthetic dollar market. Senior depositors will benefit from the Ethena points distribution gaining up to 100x Shards per day while Junior depositors will earn up to 100% more than the base USDe yield.
Stablecoin trilemma
The main target and purpose of stablecoins are to hold a stable value pegged to the value of another asset, such as a fiat currency. In doing so, every stablecoin has to find the best equilibrium between price stability, i.e. collateralization, decentralization, and capital efficiency.
This creates a trilemma that under no condition let achieve the three goals at the same time. For this reason, various stablecoin solutions have emerged over time: fiat-backed, crypto-backed, and algorithmic stablecoins.
Ethena’s approach
Ethena aims to offer a solution that is stable and capital-efficient with the end goal of decentralizing the control of the token
Ethena’s synthetic dollar, USDe, will provide the first censorship resistant, scalable and stable crypto-native solution for money achieved by delta-hedging staked Ethereum collateral.
USDe peg stability is ensured through the use of delta hedging derivatives positions against protocol-held collateral.
USDe is meant to be the first internet bond thanks to the combination of yields generated through staking and derived from the funding and basis spread of perpetual and futures markets. USDe retains its peg to a dollar by being fully collateralized by users’ deposits and being “delta neutral” on the collateral provided, i.e., having no exposure to the underlying price changes.
By staking their USDe holdings, users can get double-digit native returns on the token and contribute to the stability of the token itself.
USDe risks
The main risk USDe users face is related to the architecture of the token itself which relies on the funding and basis spread of perp and future market to generate yields. To minimize any loss for USDe, Ethena has put in place an insurance fund to create an additional margin of safety in case of periods of negative funding.
Based on Ethena’s research, the insurance fund should be ~$36m given the $985m in USDe liquidity. The insurance fund currently sits at $16m per the latest metrics, i.e. around 50% lower than expected.
The lower size of the insurance fund shouldn’t be attributed to the Ethena team’s decision, but probably more to the huge success of the synthetic token they launched, i.e. the TVL increase outperformed the one of the insurance fund. This asynchronous growth combined with the increase in liquidity may put the insurance fund under stress in case of prolonged negative funding rates.
💥 Thanks to DeFi composability, you can now get an additional layer of protection for USDe liquidity providers from today!
USDe Yield Tranches
USDe Yield Tranches empower liquidity providers to earn risk-adjusted returns with two different profiles thanks to the Senior-Junior set-up.
Users will have the choice between staking USDe and receiving yield generated by the protocol or accumulating Shards to be eligible for the future Ethena’s airdrop.
- The Senior tranche fits users who look to collect the Shard points distributed by Ethena and want to earn yield with minimal risk exposure to the underlying. It offers a 30% net yield at launch.
- The Junior tranche fits users who are confident in taking more risk on USDe by covering the Senior side in exchange for boosted yield throughout the deposit period. It offers an 86% net yield at launch.
Following the latest updates to the Shard campaign of USDe, users will be able to collect 1x Shards per day for staking USDe.
Given that the Idle’s vault will distribute Shards only to the Senior side, i.e. 100%, users can further increase their points share thanks to the amount withheld by Junior LPs. Let’s see some examples with different Senior and Junior liquidity ratios:
- If Sr:Jr = 50:50, Senior LPs will get 2x more points → 2 Shards per day
- If Sr:Jr = 20:80, Senior LPs will get 5x more points → 5 Shards per day
- If Sr:Jr = 80:20, Senior LPs will get 1.25x more points → 1.25 Shards per day
The Shards will be collected by Yield Tranches CDO contract and distributed to Senior LPs when unlocked. Users will earn Shards by staking USDe and only for the duration of the Shard campaign as announced by Ethena. The usual terms of the Ethena’s Shard campaign apply.
Specifications
Users can deposit USDe in the Senior or Junior tranche of the vault by visiting the Yield Traches section in the Idle’s dApp or using the following links:
- Senior tranche 0xf3188697bd35df73e4293d04a07ebaaf1ffc4018
- Junior tranche 0xb8d0be502a8f12cc5213733285b430a43d07349d
The main contract address (CDO) is 0x1EB1b47D0d8BCD9D761f52D26FCD90bBa225344C
The CDO contract will take care of staking the USDe deposited. At funds redemption, users will receive sUSDe and after the 7-day cooldown period, they can claim the USDe either from Idle or Ethena.
A tool to simulate the Senior and Junior yields, coverage, and boost can be accessed here.
About Idle DAO
Idle DAO is an on-chain organization that empowers the DeFi credit market with robust yield automation and hedging instruments, facilitating its expansion and establishing a foundation for sustainable financial ecosystems via a more efficient and risk-adjusted capital allocation.
At the heart of Idle product design, there is a much broader thesis on the shifting DeFi lending market. It is formed on the core belief that, over the coming years, the global debt activity will move on-chain, making every transaction and loan programmable and auditable — as the world’s debt moves on-chain, liquidity providers will have the essential need to manage their exposure to it.
