Bitcoin-Backed USDe: Ethena’s Move Sparks Terra Luna Comparisons

Ki Young Ju, CEO of the data analytics platform CryptoQuant, expressed apprehension regarding Ethena Labs’ choice to support its newly launched USDe stablecoin with Bitcoin.

On Thursday, Ethena Labs announced the integration of Bitcoin (BTC) as a backing asset for USDe. This signifies that Bitcoin will now function as collateral to maintain the peg of the synthetic dollar stablecoin to the U.S. dollar.

The team highlighted that transitioning to BTC-backed positions opens significant avenues for USDe to grow beyond its $2 billion supply. Nonetheless, Ki Young Ju has raised concerns about how this move might not benefit Bitcoin holders. He voiced reservations, drawing parallels to a potential contagion risk akin to the situation encountered with Terra Luna’s troubled UST stablecoin in 2022.

The Terra team’s consistent selling of Bitcoin to stabilize UST during its fluctuation away from the $1 peg had a notable effect on Bitcoin’s price. The founder of CryptoQuant expresses concerns about the possibility of a similar situation happening with USDe.

Bitcoin Delta Strategy Raises CeFi Concerns

Moreover, Young Ju raised concerns about Ethena Labs’ strategy to uphold a delta-neutral stance for Bitcoin amidst bearish market conditions. He highlighted that in bullish markets, they maintain long positions in spot BTC while simultaneously shorting BTC.

The industry expert stressed that the USDe stablecoin seems to be a Centralized Finance (CeFi) venture managed by a hedge fund, highlighting its effectiveness primarily in bullish market conditions. Young Ju expresses concern about the resilience of USDe’s peg in the event of algorithmic failure during bearish market phases.

Notably, USDe has seen a significant increase in the last few months. Additionally, Ethena Labs has launched a governance token called ENA, currently valued at $1.61 billion. The proposal also suggested that the platform intends to increase its allocation of funds towards USDe, considering users’ inclination towards USDe over sUSDe.

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The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.

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