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