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Ethena Labs introduced to again its USDe artificial greenback with Bitcoin and a few crypto specialists have raised crimson flags on the transfer as it might crash the crypto market. Among these specialists, on-chain information platform CryptoQuant CEO stated USDe backed by Bitcoin raises dangers of a possible Terra LUNA-like disaster.

CryptoQuant CEO Red Flags Ethena Backing USDe With Bitcoin

Ki Young Ju, founder and CEO of CryptoQuant, stated Ethena onboarding Bitcoin as a backing asset to USDe isn’t excellent news for Bitcoin holders.

He believes backing USDe with Bitcoin dangers a possible contagion just like LUNA. Terra-LUNA maintained a peg for UST stablecoin by means of Bitcoin reserves on the Luna Foundation Guard (LFG), which was bought to keep up the peg. The Terra-LUNA disaster crashed the crypto market and triggered bankruptcies for a number of crypto companies reminiscent of crypto hedge fund Three Arrows Capital.

CryptoQuant CEO particularly identified the issue in sustaining delta-neutral technique for BTC in bear market. In bull market, Ethena Labs plans to carry spot BTC and quick BTC as a part of money and carry commerce. He added that promoting BTC to stabilize USDe’s peg if their algorithm fails throughout bear markets is an enormous concern for him.

“If there’s a method to short BTC by holding some DeFi-wrapped BTC, the market size would be smaller than its TVL. This is a CeFi stablecoin run by a hedge fund, effective only in bull markets. Correct me if I’m wrong,” stated Ki Young Ju.

Every so typically we see one thing new on this area. I typically discover myself on the mid curve for an intensive period of time. I’m comfy right here. That being stated, there have been occasions on this trade I want I used to be extra inquisitive about, there have additionally been occasions I positively did…

— Andre Cronje (@AndreCronjeTech) April 3, 2024

Also Read: 18,060 Bitcoin Options & 270,440 Ethereum Options To Expire Today

Ethena’s USDe Synthetic Dollar

Ethena Labs claims the essential Bitcoin unlock to allow USDe to scale considerably from the present $2 billion provide to $10 billion market cap. Users have to deposit stablecoins reminiscent of USDT, FRAX, DAI, crvUSD, and mkUSD to get Ethena’s USDe.

Meanwhile, it generates a yield of 37% by shorting Ethereum (ETH) futures and pocketing funding charges. Crypto specialists warn USDe is a brand new protocol and never a stablecoin and will have a optimistic or unfavourable yield based mostly available on the market situations.

In truth, Aave plans to drop MakerDAO’s DAI as collateral after MakerDAO proposed allocating 1 billion DAI stablecoin, almost 20% of its complete provide to USDe. AAVE chan founder Marc Zeller believes there’s a main contagion threat

Ethena (ENA) value fell 9% within the final 24 hours, with the worth at the moment buying and selling at $0.922.

Also Read: Solana DEX Jupiter Announces Major Upgrade, JUP Price To Rally?

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Varinder has 10 years of expertise within the Fintech sector, with over 5 years devoted to blockchain, crypto, and Web3 developments. Being a expertise fanatic and analytical thinker, he has shared his data of disruptive applied sciences in over 5000+ information, articles, and papers. With CoinGape Media, Varinder believes within the big potential of those revolutionary future applied sciences. He is at the moment overlaying all the newest updates and developments within the crypto trade.

The introduced content material might embody the private opinion of the creator and is topic to market situation. Do your market analysis earlier than investing in cryptocurrencies. The creator or the publication doesn’t maintain any duty on your private monetary loss.