USDe: how can a stablecoin yield 27%?

Created by Ethena Labs on the Ethereum blockchain, the Unitary Status Dollar Ecoin (USDe) is the latest entrant in the stablecoin market. According to CoinGecko, it is the fifth largest stablecoin and a novel one to boot. It promises a US dollar peg with a twist - high-yield generation. And, unlike traditional stablecoins backed by real-world assets such as USD reserves (e.g., Tether USDT), its $, loans, gold, Bitcoins and algorithmic stablecoins (e.g. TerraUSD, DAX), enable Ethena’s USDe to utilize a "delta-hedging" strategy with staked Ethereum (ETH). Below provides a short breakdown:

·      A portion of the USDe supply is used to purchase and stake ETH. This generates staking rewards/income, contributing to the high yield offered by USDe. Delta hedging ensures short positions on ETH futures contracts are taken out to offset price fluctuations. If the price of ETH goes up, the short positions lose value, but the staked ETH appreciates in value, maintaining the peg. Conversely, if the…