Author: G | Ethena, Founder of Ethena
Compiled by: 0xresercher
In May, I had described the final roadmap for Ethena 2024, where I had articulated the vision for our most important creation in the crypto domain - the internet currency - and how it would drive the convergence of funds and interest rates across DeFi, CeFi and TradFi.
Looking back, what we are most proud of is the resilience we have shown during the half-year market downturn. During this period, we encountered many gloating onlookers, but there were also those who steadfastly stood by us. For this, I am deeply grateful.
I am well aware that choosing to support us in the early days of Ethena was not an easy thing. It required taking on special risks, understanding completely new concepts, and choosing to trust - believing that we could deliver on our promises.
But this is the essence of innovation, challenging the status quo, and driving industry progress.
The team and I are grateful for your trust, and we are honored and work tirelessly to build better products to reward your trust.
A few days after the Luna collapse, I resigned from my job and founded Ethena, and a few months after the FTX event, I assembled the team.
We persevered through the 2023 bear market, and in the past six months of market downturn, we have doubled down our efforts, elevating Ethena's core product and ecosystem goals tenfold.
This article will detail our goals for 2025 and cover the following topics:
Summary of Ethena's key metrics in 2024;
Ethena's foray into traditional finance through the customized product sUSDe;
Why is sUSDe the next logical step in the evolution of traditional finance after ETFs?
The macroeconomic tailwinds for USDe in a loose interest rate environment;
The current state and future of the crypto dollar landscape;
Ethena's Telegram savings and payments app for a billion users;
Ethena network ecosystem applications and new chains;
Ethena 2024 Review:
Became the third-largest dollar asset in the space in 10 months, with a supply of $6 billion
The fastest-growing dollar asset to $5 billion in history
Annualized revenue exceeded $1.2 billion last month
Second-fastest crypto startup to reach $100 million in revenue, after pump.fun
Became the protocol with the highest revenue per employee in the space in December
What initially piqued my interest in DeFi protocols was:
Financial services can be scaled through the marginal cost of software
Capital can flow freely globally at internet speeds
This gives us the ability to create the most profitable entities on Earth, at almost zero cost.
For this goal, Ethena has only been in existence for a year.
Revenue run rate per employee in December
Ethena is the second-fastest startup to reach $100 million in revenue in history
Ethena officially launched in February 2024. The current USDe supply is around $6 billion, making it one of the fastest-growing applications in crypto history. A year after its launch, USDe is second only to the nearly decade-old USDT and USDC.
The fastest-growing dollar-denominated asset in history
Excluding USDT and USDC, Ethena has captured 85% of all on-chain dollar asset growth in 2024. In recent weeks, the nominal dollar inflows into USDe have exceeded the total growth of the most successful ETF products in history.
Since October 1st, the capital inflows into USDe have exceeded all aggregated ETFs of ETH and BTC (excluding IBIT)
In the DeFi space, Ethena has become a critical component for other financial applications. Over 50% of Pendle's Total Value Locked (TVL) comes from Ethena; around 25% of Sky's revenue (over $100 million) is related to Ethena; about 30% of Morpho's TVL is from Ethena assets; Ethena's integration on Aave was the fastest-growing asset in 2024, reaching over $1.2 billion in just three weeks; most EVM-based perpetual contract exchanges have listed USDe as a collateral asset.
Ethena is also one of the first on-chain products to venture into the CeFi market (primarily as a collateral asset for trading derivatives). USDe is now listed on around 60% of the centralized exchange market, with only two major exchanges yet to list it. In just a few weeks, USDe surpassed the USDC balance on Bybit, demonstrating the product-market fit.
USDe surpassed the USDC balance on Bybit in less than a month
USDtb was also launched last month, with BlackRock's BUIDL Treasury fund as the collateral backing the stablecoin. For end-users, the product is indistinguishable from regular stablecoins, as it is designed to be shared with distribution partners like centralized exchanges to incentivize them to use the product on their platforms. We will be announcing exchange integrations throughout January, allowing these institutions to offer a full suite of dollar products through Ethena.
Finally, we are seeing decentralized and on-chain stablecoins start to adopt a hybrid model using USDe and Real-World Asset (RWA) products to back their own products. Ethena can now provide the backend infrastructure to offer both products to issuers, with Sky, Frax, and Usual all using Ethena products in their offerings.
But all these achievements pale in comparison to the transformations that are about to unfold.
Ethena's next phase of growth will be driven by its foray into traditional finance.
The infrastructure is in place, the regulatory path for the product in traditional finance is clear, and the scale of the opportunities there far exceeds anything we've seen in the crypto space so far.
Entering Traditional Finance: A Convergence and Symbiosis
Note: The distribution platforms listed above are for illustrative purposes only and may not all be current partners
The fixed income market is the largest liquid investment asset class globally, with over $190 trillion in size. Most asset managers, sovereign wealth funds, pension funds, and insurance funds invest in fixed income products. The entire crypto market capitalization is still less than the debt capital market of Australia, which has a population of less than 0.5% of the global population.
The most important financial instruments for savings and store of value in the world are the US dollar and its yields. It sounds simple, but the scale of demand for such products dwarfs the entire crypto market (including Bitcoin).
This is why, after ETFs, dollar savings products are the next logical evolution for these institutions. The futures market is the only crypto market large enough in scale and able to meet their dollar needs.
Ethena is ready to provide such a product.
sUSDe for Traditional Finance - iUSDe
Ethena will launch a new product, iUSDe, next month, aiming to bring sUSDe to the traditional finance space through a regulated product.
iUSDe will be the same as sUSDe, but with a simple wrapping contract that adds some transfer restrictions at the token level, making it easier for traditional finance entities to hold and use.
This includes partnering with counterparties to provide a regulated, independently managed Special Purpose Vehicle (SPV) that traditional finance institutions can subscribe to, allowing them to participate in the product without having to engage with the crypto space directly.
We will be announcing the first batch of iUSDe traditional finance distribution partners this month.
The focus for Q1 2025 will be to work with traditional finance distribution partners to enable their clients to access iUSDe, covering the full spectrum:
Asset managers
Private equity funds
Exchange-traded products
Private investment trusts
Major brokerages
By establishing a bridge connecting traditional finance, traditional financial institutions can obtain US dollar loans at a spread of SOFR+100-200bps, and funds will flow into Ethena on an unprecedented scale until the yield of the sUSDe protocol narrows the spread with the risk-free rate.
In this case, Ethena will play the role of an interest rate arbitrage tool, promoting the flow of capital and the integration of interest rate markets between DeFi, CeFi and traditional finance.
Traditional finance will be able to price iUSDe relative to the risk-free rate spread, while the supply of USDe will be adjusted based on changes in local crypto interest rates, serving as a balancing item connecting traditional finance and internet finance.
Based on current market conditions, we find that these capital pools still have over $10 billion in incremental iUSDe capacity.
The Attractiveness of iUSDe to Traditional Finance
The uniqueness of Ethena iUSDe lies in:
It combines the only two forms capable of achieving true native crypto returns on a billion-dollar scale.
Its returns exhibit relatively weak negative correlation with those in traditional finance.
Its underlying assets are held by custodial institutions, which can be insured by traditional financial institutions.
Integrating the only two scalable native crypto return sources into a single dollar product provides a simple channel for asset allocators in traditional finance to access and harvest excess returns in the crypto domain through a single asset.
The Highest Risk-Adjusted Dollar Returns in Crypto
When Ethena's iUSDe is compared to existing traditional fixed income portfolios, the unlevered dollar annual return was around 20% last year, which was unheard of before. As interest rates decline, iUSDe as an alternative will become more attractive.
sUSDe vs. Traditional Fixed Income Products
The scale of the basis in the crypto market has not been fully understood. This is undoubtedly the largest potential cash flow source in the entire field. Since the launch of Ethena, the basis has grown more than threefold. Importantly, this scale is sufficient to attract the attention of the traditional finance world and become a viable opportunity.
The total open interest has reached $110 billion, with an annualized basis of around 20%, generating about $10 billion in cash flow for Ethena annually, nearly 10 times the cash flow of the entire ETH liquid staking market.
Currently, Ethena accounts for about 7% of the open interest. At a Bitcoin price of $20,000, if it only accounts for 10% of the open interest, the supply of USDe will reach $25 billion.
The path forward is clear, and the task now is to execute and deliver this product to the traditional finance market.
With the growth of Bitcoin open interest and market share, the target supply of USDe is $25 billion
Macroeconomic Interest Rate Tailwinds and Negative Correlation:
The most attractive feature of sUSDe for traditional finance is that its returns are negatively correlated with actual interest rates. There are almost no other debt products in traditional finance that have this characteristic.
This is intuitive: as actual interest rates continue to decline, speculative activity in the crypto market accelerates, and the long-term demand for leverage increases, this will drive up financing rates, ultimately increasing the yields Ethena harvests.
We observed this phenomenon during the 2020/21 zero interest rate policy (ZIRP) period, when financing spreads exceeded 15%, and this phenomenon has begun to emerge again in Q4 2024.
The Driving Effect of Rate Cuts on sUSDe Growth
Recently, we have observed the exact response to rate cuts: about 75 basis points of rate cuts have caused financing rates to rise from around 8% to over 20%, a change that occurred over a few months in the past quarter. This trend is expected to continue as the easing cycle arrives next year.
The Compounding Effect of Rate Cuts
Rate cuts, of course, have a compounding effect on Ethena's growth and fundamentals. The decline in interest rates not only drives the expansion of stablecoin demand, but also makes Ethena more attractive from a risk-adjusted basis as the benchmark rate for RWAs declines, offsetting the impact of the actual decline in interest rates on traditional fixed income products.
A Simple Example:
For a $100 billion fixed income portfolio, if rates decline by 200 basis points, an additional $15 billion of sUSDe would be required to maintain the blended portfolio return at the same level.
Illustrative Impact of sUSDe on a $100 Billion Fixed Income Portfolio
A higher risk-adjusted dollar return from native crypto resources is the type of product that can divert tens of billions of dollars from the old financial system to the internet system.
Ethena will be the bridge for this transformation.
This transformation will happen in Q1 2025.
The Future of the Crypto Dollar Landscape:
The Current Crypto Dollar Landscape
The current and future state of the crypto dollar will be vastly different.
Currently, the use cases of stablecoins can be roughly divided into the following categories:
Trading and Collateral: Currently dominated by Tether, with the vast majority of spot and perpetual contract pairs priced in USDT, with a market size of around $125 billion. Ethena, as a derivatives collateral asset, has already surpassed USDC on the second largest exchange.
Value Storage Tool for Developing Countries: Providing a global US dollar channel for individuals outside the US banking system, currently mainly led by Tether on the TRON network, with a market size of around $60 billion.
Savings Tool or Investment Product: Currently led by Ethena and Sky, with almost no participation from the traditional financial system in on-chain products, with a market size of around $15 billion.
Payment Scenarios: The market is currently almost non-existent, with PYUSD and USDC having some presence, but not yet achieving meaningful integration with traditional payment systems, with a market size of less than $5 billion.
In summary, Tether dominates the two main current use cases: trading and value storage tools for developing countries.
The Future Crypto Dollar Landscape
But I believe the current landscape will undergo a dramatic change with the entry of the following two categories:
Traditional finance entering the savings product use case
FinTech companies and Web2 companies entering the payments product use case
Although the above two categories are currently the smallest in scale, they have the greatest growth opportunities in the future.
While Ethena has found product-market fit in the two most popular current use cases, I believe the entry of traditional finance into savings products and Web2 or FinTech companies into the payments use case will bring over $50 billion in net new US dollar inflows to the market over the next two years.
sUSDe will be the primary beneficiary of the former.
As for the latter, we plan to create dedicated applications within the Telegram and TON ecosystems to address the payments and savings tool use cases, without directly competing in the payments company domain.
A Product for One Billion Users:
sUSDe Application in Telegram
In 2025, we will launch a dedicated sUSDe use case within the Telegram app, where users can experience a mobile digital banking-like experience for transfers, spending, and savings.
Payments will be directly integrated with Apple Pay, allowing users to switch between their sUSDe savings assets and direct mobile payments on their phones.
Yield-bearing US dollars are the world's most important savings asset for wealth preservation, and I believe the only crypto product that can reach one billion people besides Bitcoin.
With Telegram's user base of over 900 million, we have a distribution platform to bring this product to the world.
Our shared goal is to provide one billion people with a payment and savings product as easy to use as sending a message.
Ethena Ecosystem Network:
Ethena's core product goal is simple: to stand alongside Tether as one of the most important products in the crypto space, with USDe and USDtb.
Product and token strategy tightly integrated with ecosystem applications
In addition to these core products, Ethena will continue to transform from a single asset issuer into a platform that supports the best developers and promotes on-chain financial innovation.
As part of building an ecosystem based on sUSDe, sENA is designed to accrue value through a token model similar to BNB, where applications in the ecosystem will reserve a portion of the token supply to airdrop to sENA holders.
The US Dollar will continue to serve as the infrastructure for on-chain capital flows, not only for settlement and payments, but also for all core DeFi primitives such as trading, lending, derivatives, and leverage.
Today, every DeFi protocol involving the US Dollar can be rebuilt around Ethena and have its economic structure improved by default.
sUSDe unlocks new possibilities for innovation, such as fixed-rate lending, leveraged strategies in money markets, and derivative margin collateralized by rewards. However, the full scope of new products that could be built on top of sUSDe remains to be seen.
The Ethena Network is our plan to directly support innovative protocols built on Ethena's sUSDe, while aligning with their success through the ENA token.
We have announced two applications:
Ethereal: A perpetual and spot trading exchange built on its own application chain, with a full order book denominated in sUSDe and local rewards, where Ethena will provide liquidity and hedging.
Derive: The largest on-chain options and structured products protocol, with sUSDe as the core collateral asset.
Ethereal will open its testnet next month, while Derive plans to launch its token in the next two weeks.
These are just the first examples of the entire DeFi ecosystem built on sUSDe, with more applications to be released in Q1 2025.
On-chain details will be published in Q1 alongside the Ethereal mainnet launch.
Ethena Network Applications
Once again, thank you all for your support in 2024. Without our users and those who have always believed in our vision, Ethena would be nothing.
2024 was the year we launched our first real products, laying the foundations and preparing for the convergence of macroeconomic tailwinds.
In 2025, we will disrupt the financial system on a scale far beyond what we have achieved so far.
