Synthetic Dollars vs Tokenized Dollars: What's Behind the Dollar Peg?

The crypto industry has developed various methods to create digital dollars on blockchain platforms. However, not all of these dollar-backed assets work in the same way under the hood.

USDC is an example of a tokenized dollar that represents a dollar-backed claim. On the other hand, Ethena's USDe creates synthetic dollar exposure through crypto assets and derivatives.

The key technical difference between these two models lies in how they maintain their peg to the value of one dollar. Tokenized dollars rely on reserves and redemption mechanisms, whereas synthetic dollars use financial engineering such as delta hedging or overcollateralization to create a stable dollar-denominated value.