USDe and sUSDe: A New Wave of Synthetic Stablecoins and Potential Challenges

Since 2024, the stablecoin market has been undergoing a new change driven by structural innovation. After years of traditional fiat-backed stablecoins dominating the market, USDe has rapidly risen with its "no fiat support" synthetic stablecoin design, once surpassing a market capitalization of 8 billion USD, becoming the "high-yield dollar" in the DeFi world.

Recently, a joint staking event has sparked heated discussions in the market: an annualized return approaching 50%. On the surface, it seems like a common incentive strategy, but it may also reveal the structural liquidity pressure that the USDe model faces during the ETH bull market.

This article will focus on the incentive activity, briefly explaining USDe/sUSDe and related platforms, and then analyze the systemic challenges hidden behind it from the perspectives of revenue structure, user behavior, and capital flow. It will also compare historical cases to explore whether the future mechanism has enough resilience to cope with extreme market situations.

1. Introduction to USDe and sUSDe: Synthetic stablecoins based on native cryptographic mechanisms

USDe is a synthetic stablecoin launched in 2024, designed to avoid reliance on traditional banking systems and fiat currencies. As of now, its circulation scale has exceeded 8 billion USD. Unlike stablecoins backed by fiat reserves, USDe's anchoring mechanism relies on on-chain crypto assets, especially ETH and its derived staking assets (such as stETH, WBETH, etc.).

Its core mechanism is a "delta neutral" structure: the protocol holds positions in assets such as ETH on one hand, and opens equivalent perpetual short positions in ETH on centralized derivatives trading platforms on the other hand. Through the hedging combination of spot and derivatives, USDe achieves a net asset exposure close to zero, thereby stabilizing its price around 1 USD.

sUSDe is the representative token that users receive after staking USDe into the protocol, featuring automatic yield accumulation. Its yield mainly comes from the funding rate returns in ETH perpetual contracts, as well as derivative returns from the underlying staked assets. This model aims to introduce a sustainable yield mechanism for stablecoins while maintaining its price anchoring mechanism.

2. The Collaborative System of Lending Agreements and Incentive Distribution Mechanisms

A certain decentralized lending protocol is one of the oldest and most widely used platforms in the Ethereum ecosystem, dating back to 2017. It promoted the popularization of the DeFi lending system in its early days through the "flash loan" mechanism and a flexible interest rate model. Users can deposit cryptocurrency assets into the protocol to earn interest or borrow other tokens by collateralizing their assets, all without intermediaries. Currently, the protocol's total value locked (TVL) is approximately $34 billion, with nearly 90% deployed on the Ethereum mainnet.

A certain on-chain incentive distribution platform specifically provides programmable and conditional incentive tools for DeFi protocols. By setting predefined parameters such as asset type, holding duration, liquidity contribution, etc., protocol parties can accurately establish reward strategies and efficiently complete the distribution process. As of now, the platform has served over 150 projects and on-chain protocols, with a total distributed incentive amount exceeding 200 million USD, supporting multiple public chain networks including Ethereum, Arbitrum, and Optimism.

In this USDe incentive event, the lending protocol is responsible for organizing the lending market, configuring parameters, and matching pledged assets, while the incentive distribution platform is responsible for reward logic settings and on-chain distribution operations.

In addition to the current USDe incentive cooperation, these two platforms have previously established stable cooperative relationships in multiple projects, one of the most representative cases being the joint intervention in the de-pegging issue of a certain over-collateralized stablecoin.

The over-collateralized stablecoin quickly fell below its peg value due to limited market acceptance and insufficient liquidity at the initial launch, lingering in the range of $0.94 to $0.99 for a long time, losing its price peg to the USD.

To address this deviation, the two platforms established a liquidity incentive mechanism for trading pairs of the stablecoin with USDC and USDT on a certain DEX. The incentive rules aim for "close to $1", granting higher rewards to market makers who provide concentrated liquidity near $1, thereby guiding buy and sell depths to concentrate within the target range, forming a price stability wall on-chain. This mechanism has proven to be effective in practice, successfully driving the price of the stablecoin to gradually recover to near the $1 level.

This case reveals the essential role of incentive distribution platforms in stability mechanisms: through programmable incentive strategies, maintaining the liquidity density of key trading zones on-chain, just like arranging "subsidy vendors" at market price anchor points. Only by continuously providing returns can a stable market structure be maintained. However, this also raises related issues: once the incentives are interrupted or the vendors withdraw, the support of the price mechanism may also fail.

3. Analysis of the Source Mechanism for 50% Annualized Returns

On July 29, 2025, the USDe development team officially announced the launch of a feature module called "Liquid Leverage" on a certain lending platform. This mechanism requires users to deposit sUSDe and USDe into the lending protocol at a 1:1 ratio, forming a composite staking structure, and in return, they receive additional incentive rewards.

Specifically, qualified users can obtain three sources of income:

1. Incentive USDe rewards automatically distributed by the incentive distribution platform (currently approximately 12% annualized);
2. The protocol revenue represented by sUSDe, which comes from the funding fees and staking yields of the delta-neutral strategy behind USDe;
3. The basic deposit interest of lending platforms depends on the current market capital utilization rate and pool demand.

The specific participation process for this event is as follows:

1. Users can obtain USDe through the USDe official website or decentralized exchanges;
2. Stake the USDe you hold on the USDe platform to exchange it for sUSDe;
3. Transfer an equivalent amount of USD with sUSD at a 1:1 ratio to the lending platform;
4. Enable the "Use as Collateral" option on the lending platform page;
5. After the system detects compliant operations, the incentive distribution platform automatically identifies the address and regularly distributes rewards.

Official data, underlying computation logic breakdown:

Assumption: 10,000 USD principal, 5x leverage, total borrowed 40,000 USD, using 25,000 USD as collateral for USDe and sUSDe.

| Yield/Cost Category | Source | Calculation Formula | Annual Yield Amount | |-------------|------|---------|-----------| | Protocol Incentive Earnings | sUSDe Protocol Earnings + USDe Incentives | 25,000 × 12% × 2 | $5,975 | | Lending Interest Income | Lend interest earned from USDe deposited in lending platform | 25,000 × 3.55% | $890 | | Lending Interest Cost | Annual Interest Expense for Lending USDT | 40,000 × 4.69% | $1,876 | | Total Net Income | - | 5,975 + 890 - 1,876 | $4,989 |

Leverage Structure Description:

The premise of this yield relies on a compound structure established by the "lending -- depositing -- continuing to lend" cycle, where the initial principal is used as collateral in the first round, and after lending out the funds, a subsequent round of dual deposits in USDe and sUSDe is conducted. By amplifying the staking position with 5x leverage, the total investment reaches 50,000 USD, thereby increasing rewards and baseline returns.

4. Does the incentive plan reveal that USDe is facing structural difficulties?

Despite both being stablecoins issued based on crypto asset collateral, USDe and a certain over-collateralized stablecoin have significant differences in their mechanisms. USDe maintains its peg through a delta-neutral structure, with historical prices generally fluctuating around $1, without severe de-pegging or encountering liquidity crises that rely on liquidity incentives to restore prices. However, this does not mean that USDe is completely immune to risks; its hedge model itself has potential vulnerabilities, especially during periods of extreme market volatility or when external incentives are withdrawn, it may face similar stability shocks.

The specific risks are reflected in the following two aspects:

1. The funding rate is negative, and the protocol yield declines or even becomes inverted:

The main yield of sUSDe comes from the LST yields obtained from staking assets such as ETH, along with the positive funding rate of ETH short perpetual contracts established on centralized derivatives platforms. The current market sentiment is positive, with longs paying interest to shorts, maintaining a positive yield. However, once the market turns weak, with an increase in shorts and a negative funding rate, the protocol will need to pay additional costs to maintain hedge positions, resulting in a reduction in yield, possibly even turning negative. Although USDe has an insurance fund buffer, there remains uncertainty about whether it can cover negative yields in the long term.

2. Incentive Termination → Promotional Rate 12% returns will disappear directly:

The Liquid Leverage activity currently executed on lending platforms offers additional USDe rewards (approximately 12% annualized) for a limited time. Once the incentive ends, the actual returns held by users will revert to the sUSDe native yield (funding fees + LST yield) along with the lending platform deposit interest rate, potentially decreasing to a range of 15-20%. If under a high leverage structure (e.g., 5 times), the USDT borrowing rate (currently at 4.69%) added, the profit margin is significantly compressed. In more severe cases, in an extreme environment where funding is negative and interest rates are rising, users' net returns could be completely eroded or even turn negative.

If incentives are terminated, ETH falls, and the funding rate turns negative simultaneously, the delta-neutral yield mechanism relied upon by the USDe model will be significantly impacted. The sUSDe yield may drop to zero or even turn negative. If this is accompanied by a large number of redemptions and sell pressure, the price anchoring mechanism of USDe will also face challenges. This "multiple negative accumulation" constitutes the most critical systemic risk in the current architecture of USDe and may also be the underlying reason behind its recent high-intensity incentive activities.

5. Will the structure stabilize if Ethereum prices rise?

Due to the stable mechanism of USDe relying on the spot staking of Ethereum assets and derivative hedging, its capital pool structure faces systemic drainage pressure during rapid ETH price increases. Specifically, when the ETH price approaches the market's expected high, users tend to redeem their staked assets in advance to realize profits or turn to other assets with higher returns. This behavior gives rise to a typical "ETH bull market → LST outflow → USDe contraction" chain reaction.

From the data, it can be observed that the TVL of USDe and sUSDe declined simultaneously during the surge in ETH prices in June 2025, and there was no increase in annualized yield (APY) accompanying the price rise. This phenomenon contrasts with the previous bull market at the end of 2024: at that time, after ETH reached its peak, the TVL gradually fell, but the process was relatively slow, and users did not collectively redeem their staked assets early.

In the current cycle, both TVL and APY are declining in sync, reflecting an increase in market participants' concerns about the sustainability of sUSDe yields. When price fluctuations and changes in funding costs pose potential negative yield risks to delta-neutral models, user behavior shows greater sensitivity and responsiveness, with early exits becoming the mainstream choice. This phenomenon of capital withdrawal not only weakens the expansion capacity of USDe but also further amplifies its passive tightening characteristics during the ETH upward cycle.

Summary

In summary, the current annualized return of up to 50% is not the norm for the protocol, but rather the result of multiple external incentives driving a phased outcome. Once risk factors such as high volatility in ETH prices, the termination of incentives, and negative funding rates are concentrated and released, the delta-neutral return structure relied upon by the USDe model will face pressure, and the sUSDe returns may quickly converge to 0 or turn negative, thereby impacting the stable anchoring mechanism.

Recent data shows that the TVL of USDe and sUSDe has declined simultaneously during the ETH uptrend, and the APY has not risen in sync. This "profit extraction during a rise" phenomenon indicates that market confidence is starting to price in risks early. Similar to the "peg crisis" faced by a certain over-collateralized stablecoin, the current liquidity of USDe is largely dependent on ongoing subsidies for stability.