The USDe token, Ethena's so-called synthetic dollar, which aims to replicate the common hedge fund basis trade, is attracting billions of dollars of investment, as well as scepticism about the sustainability of its 37% yield, according to a report by Bloomberg.

The basis trade exploits differences in prices between spot and futures markets, and the crypto sector version, known as a cash-and-carry trade, has proven particularly profitable recently as both crypto currency prices and the funding rates — interest paid by bullish traders to maintain a futures position — have surged.

USDe is mainly backed by stETH, a derivative of ether, the second-largest cryptocurrency. Traders created USDe tokens by depositing stETH or some other accepted tokens, with Ethena Labs — the entity behind USDe — then opening short positions via ether futures and perpetual swaps, a type of crypto futures contract that does not expire across a variety of crypto exchanges including Binance.

Those short positions then allow holders of sUSDe — a derivative of USDe — to benefit from elevated funding rates, which have reached more than 100% on an annualised basis in this year’s bull market.

Ethena has grown rapidly since its creation last year, with more than $2bn worth of cryptocurrencies deposited into the project, according to tracker DefiLlama. However, its performance has so far only proven that the strategy works in a bullish market environment.

The report quotes Robert Leshner, a Partner at fintech venture fund Robot Ventures, in a recent podcast about Ethena: “It’s essentially a tokenised hedge fund where the hedge fund is managing a somewhat complex trading strategy across many different exchange venues. The worst-case scenario is that the hedge fund doesn’t perform in-line with the implied funding rate on all of these different crypto exchanges for any number of reasons.”