Over the past 40 days, Ethena’s USDe supply has experienced significant growth, soaring from approximately $242 million on February 18 to $1.376 billion on March 28, an increase of 468.79%. Previously, it completed a US$14 million strategic financing led by top investors on February 16, with the total raised amount reaching US$300 million. Ethena not only announced a large-scale airdrop plan, expected to airdrop USDe tokens worth $1.3 billion to users on April 2, but also attracted the attention of Su Zhu, a well-known figure in the crypto field, who mentioned that Ethena brings to the market new funding dynamics.
Additionally, Su Zhu, a well-known figure in the cryptocurrency community, shared his thoughts on Ethena via the social media platform on March 19. He pointed out that Ethena introduces a new dynamic to the cryptocurrency market, which is that in conventional spot positioning and short contract arbitrage strategies, when funding rates tend to be neutral, investors may reconsider their positions. Specific to Ethena, its existence allows a part of the assets to be pledged and converted into USDe, which may affect the price fluctuations of Ethereum (ETH), leading to more severe price corrections and faster rebounds.
Below we will delve into how the powerful Ethena made such a huge wave in the blockchain field.
In 2023, inspired by Arthur Hayes' profound insights, the Ethena protocol was born, marking a major leap in the field of decentralized stablecoins. Arthur Hayes is not only a heavyweight in the cryptocurrency space, but also the inspiration for many innovative ideas. His critical thinking on the crypto stablecoin system, especially concerns about its over-reliance on the traditional banking system, provided the theoretical basis for the birth of Ethena. Ethena aims to build a stablecoin solution that does not rely on the traditional financial system and solves a core problem that has always existed in the encryption field-how to create a currency that is both stable and scalable in a decentralized environment.
As the time moves into 2024, Arthur Hayes once again expressed his firm belief in Ethena, predicting that Ethena has the potential to surpass market leader Tether and become the largest stablecoin. This is not only based on Ethena’s unique technical advantages and innovative financial tools, but also reflects Arthur Hayes’ macro perspective and profound insights into the future of decentralized finance (DeFi). The emergence of Ethena is seen as a key step in the maturity of the encryption field. The "Internet Bonds" and synthetic U.S. dollar USDe it provides are a solid step towards the future of decentralized finance.
The indissoluble bond between Arthur Hayes and Ethena is not only reflected in Ethena's founding inspiration, but also in his firm optimism for Ethena's future development potential. Through profound criticism of the traditional financial system and forward-looking thinking in the field of cryptocurrency, Arthur Hayes paved the way for Ethena to combine theory and practice. It is this indissoluble bond that combines critical thinking and innovative spirit that puts Ethena at the forefront of the development of decentralized stablecoins, showing the world a more free, open and inclusive financial future.
As Ethena Protocol, the $1.3 billion decentralized finance (DeFi) platform, prepares to launch its ENA governance token next week, we are witnessing a major milestone in token economics in the cryptocurrency space. By distributing ENA tokens to holders of the “synthetic dollar” USDe, Ethena not only gives back to the community, but also opens up a token-based decentralized governance system.
According to Ethena's token distribution strategy, core contributors, investors, foundations and ecosystem development each account for a certain proportion of the total supply. Specifically:
Core contributors account for 30% to reward team members who have made core contributions to the development of the Ethena protocol.
Investors account for 25%, which represents the token interests obtained by investors who support the development of the Ethena protocol.
The foundation accounts for 15% and will be used to further promote the popularity of USDe, reduce the crypto world's dependence on the traditional banking system and centralized stablecoins, and be used for future development, risk assessment, auditing and other aspects.
Ecosystem development accounts for 30%. This part of the tokens will be used to develop the Ethena ecosystem, 5% of which will be distributed to users as the first round of airdrops, and the remainder will support various subsequent Ethena plans and incentive activities.
Immediately after the launch of Ethena's governance token, it will launch a "second quarter event" to further expand its token economic model. This event will pay special attention to the development of new products that use Bitcoin (BTC) as a supporting asset. This step not only expands USDe’s growth potential, but also brings wider market acceptance and application scenarios to Ethena.
Sats Rewards, as the core of the second quarter event, aims to reward users who participate in the construction of the Ethena ecosystem. By increasing the rewards for early users, Ethena further strengthens the sense of participation and belonging in the community, while also encouraging new users to join. The design of this incentive mechanism demonstrates Ethena's understanding of the importance of building a lasting and active community.
Through carefully designed token economic models and incentive mechanisms, Ethena is committed to building a DeFi platform that is both inclusive and sustainable, exploring new paths for the future of decentralized finance.
Stablecoins are considered a fundamental financial instrument not only in the crypto space but also in traditional financial markets. Basis trading has a long history and is widely used by arbitraging the price difference between a spot asset and a futures instrument. In the crypto market, this trading method is particularly mature. Longs usually pay fees to shorts to maintain positions. Therefore, in most cases, the price of the perpetual contract exceeds the spot price.
Ethena, as an open-ended hedge fund, adopted the above strategy and tokenized its trading collateral into USDe stablecoin. By short an equal amount of ETH, Ethena creates a zero-delta portfolio, ensuring that the net asset value does not fluctuate with the market. This strategy allows Ethena to benefit from ETH’s staking and funding rates.
However, Ethena's model also has potential risks, such as collateral decoupling risk, uncertainty in financing rates, and counterparty risk. Especially with the mix of LST collateral and regular Ethereum, Ethena could suffer paper losses if the collateral becomes decoupled from ETH.
In order to mitigate these risks, Ethena adopts an over-the-counter settlement (OES) solution, which places funds in reputable third-party custody and only maps to centralized exchanges to provide trading margins, reducing the situation where funds are deposited in centralized exchanges. .
Although Ethena currently only uses staked ETH as collateral, the protocol may further use BTC as collateral to scale, although this may dilute USDe’s earnings.
So, what's the worst that can happen to Ethena? In addition to standard crypto risks such as team fraud and smart contract vulnerabilities, Ethena-specific risks include exchange insolvency and liquidation of unsettled hedging positions. In response to these situations, Ethena settles PnL daily, reducing capital exposure. If the exchange or OES custodian goes bankrupt, leverage may be required on other accounts to keep the portfolio delta neutral.
Finally, we have to ask, can Ethena continue to deliver its attractive annualized returns while facing these risks? Risk and financial reward always go hand in hand in the crypto world, don’t they?
