How to create a synthetically-backed fiat stablecoin.

Kabir903

One year ago, I published a proposal on how to create a synthetically-backed fiat stablecoin, independent of the TradFi banking system. My idea involved combining long cryptocurrency hedging with short perpetual futures positions to create a synthetic fiat currency unit. I named it Nakadollar, envisioning the use of Bitcoin and short-term XBTUSD perpetual futures as a means to create synthetic dollars. In the conclusion of the article, I pledged support for a reliable team, aiming to turn this idea into reality.

Oh, how much has changed in a year. Guy is the founder of Ethena. Before joining Ethena, Guy worked at a hedge fund valued at $600 billion, investing in credit, private equity, and real estate. Guy captured the DeFi summer of 2020 by delving into "trash coins" and never looked back. Inspired by reading "Dust on the Crust," he decided to launch his synthetic dollar. However, like all great entrepreneurs, he sought to improve upon my initial idea. He chose not to use Bitcoin but instead created a synthetic dollar stablecoin using Ethereum.

Guy chose Ethereum because the Ethereum network provides native yields. To ensure security and handle transactions, Ethereum network validators are directly paid a small amount of ETH for each block through the staking yield rate. Additionally, as Ethereum is now a deflationary currency, the prices of Ethereum/USD forward, futures, and perpetual futures contracts consistently remain higher than spot prices, rooted in fundamental reasons. Short-term perpetual futures holders can capture this premium. Combining physically staked ETH with short ETH/USD perpetual futures positions creates a high-yield synthetic dollar. As of this week, the staked Ethena USD (sUSDe) has an annual yield rate of approximately >50%.

Without an executable team, even the best ideas are meaningless. Guy named his synthetic dollar Ethena and assembled a rockstar team to quickly and safely launch the protocol. Maelstrom became a founding advisor in May 2023, and in exchange, we received governance tokens. Having collaborated with many high-quality teams in the past, Ethena's team spared no effort in completing the task. Fast forward 12 months, and Ethena's stablecoin USDe, just three weeks after its mainnet launch, has a circulation close to 1 billion tokens (TVL is $1 billion; 1 USDe = 1 USD).

Jiten171

This is also something to take note of.

Yamini003

Stablecoins also need stability as their primary focus.

Jiger955

This approach remains highly crucial.