Author: 0xCousin
I. Who is behind Ethena?
Ethena's team members
Ethena's team members have rich backgrounds and deep professional knowledge and practical experience in Crypto, finance, and technology.
Founder G (Guy Young) previously worked at a $60 billion hedge fund, and after the Luna collapse, founded Ethena; COO Elliot Parker was previously a product manager at Paradigm and also worked at Deribit; Jane Liu, Head of Institutional Growth in the Asia-Pacific region, was previously Head of Investment Research at Fundamental Labs and Head of Institutional Partnership and Fund Relations at Lido Finance.
Ethena's financing situation
According to Rootdata information, Ethena has completed three rounds of financing, with a total of $119.5 million raised. The lead investors include Dragonfly, Maelstrom Capital, and Brevan Howard Digital.
Ethena has attracted the attention and investment of many well-known investment institutions, which not only brings considerable capital to Ethena's development, but also provides valuable industry resources for Ethena's business development. Ethena's investors cover exchanges (YZi Labs, OKX Ventures, HTX Ventures, Kraken Ventures, Gemini Frontier Fund, Deribit, etc.), market makers (GSR, Wintermute, Galaxy Digital, Amber Group, etc.), and traditional financial investment institutions (Paypal Ventures, Franklin Templeton, F-Prime Capital, etc.).
II. What is Ethena?
In a nutshell, Ethena is a Synthetic Dollar protocol that has launched the stablecoin USDe and the savings asset sUSDe. The stability of USDe is supported by Crypto Assets and the corresponding Delta-neutral hedging (short futures) positions.
From the project's mission, Ethena aims to connect the funds of CeFi, DeFi, and TradFi through the stablecoin USDe, and at the same time, Ethena captures the interest rate differences between these three fields (exchanges, on-chain, traditional finance), thereby providing customers with more returns. If the scale of USDe develops large enough, it may also drive the convergence of capital and interest rates between DeFi, CeFi, and TradFi.
Mechanism of the USDe stablecoin
Minting/Redemption mechanism: The minting/redemption of USDe can only be performed by two independent legal entity minters (Ethena GmbH and Ethena BVI Limited) that are whitelisted. Minters need to use BTC/ETH/ETH LSTs/USDT/USDC as collateral to interact with the USDe Mint and Redeem Contract.
The first USDe minting on the Ethena protocol USDe Mint and Redeem Contract V1
A recent USDe minting based on the Ethena protocol USDe Mint and Redeem Contract V2
This is a record of USDe redemption for USDT
During minting/redemption, the pricing of Backing Assets is obtained from multiple different sources and continuously verified, including CeFi Exchanges, DeFi Exchanges, OTC Markets, as well as Oracles like Pyth and RedStone, to ensure the correctness and reasonableness of the pricing.
USDe stability maintenance mechanism: To ensure the stability of USDe, the key is to hedge the price fluctuations of the Backing Assets. Ethena adopts an automated, programmatic Delta-neutral hedging strategy.
Source of sUSDe's earnings
The earnings of sUSDe come from Ethena's disposition of the collateral.
When Ethena receives the collateral, it can hold it as a stablecoin and earn a fixed deposit rate;
It can also entrust the custodian to set up short futures positions on selected CEXs to hedge the price fluctuations of the Backing Assets, while also earning the funding rate;
If the Backing Assets are ETH, Ethena can also perform Staking to earn the ETH Staking APR.
These earnings will be distributed to users in the form of returning more USDe when users redeem their sUSDe.
Use cases of stablecoins (USDe/sUSDe/iUSDe)
In the DeFi field:
- USDe/sUSDe as collateral on lending protocol platforms like AAVE and Spark;
- USDe/sUSDe as margin collateral on Perps DEX platforms;
- USDe/sUSDe as collateral for Stablecoin protocols;
- USDe/sUSDe as the underlying asset for interest rate swap protocols;
- USDe as the pricing currency (trading pair) on Spot DEXs;
In the CeFi field:
- USDe as the pricing currency (trading pair) on CEXs;
In the TradFi field:
- iUSDe is the stablecoin launched by Ethena for the TradFi market, allowing regulated traditional companies to subscribe, so that these traditional investment institutions can provide the high returns of the Crypto market to traditional clients without having to directly access Crypto.
III. Ethena's innovations
Delta-neutral hedging strategy to hedge the price fluctuations of Backing Assets
Many stablecoin projects that use Crypto Assets as Backing Assets ultimately become insolvent due to the lack of hedging against the price fluctuations of the Backing Assets. Ethena is the first project to implement an automated, programmatic Delta-neutral hedging strategy on the Backing Assets, making the Delta value of the investment portfolio close to 0. Although Ethena's Delta-Hedging algorithm and execution model were initially a black box, whether it can continuously maintain Delta-neutrality in the long run is a potential risk point, but this stability maintenance mechanism is an innovation. In the future, Ethena may transition to an open-source RFQ model, where various market makers can compete to execute the hedging tasks.
Under normal circumstances, when USDe is redeemed, the redemption is based on the 1 USDe = 1 USDC benchmark; if the hedging mechanism fails to work or the funding rate of the hedging futures positions incurs losses, leading to a decrease in the value of the asset reserves, the redemption price for USDe holders will be proportionally reduced, and a 10 basis point compensation fee will be shown to the user.
Much higher capital efficiency than most stablecoin projects
Centralized stablecoins like USDT and USDC, which are fiat-collateralized, are heavily influenced by traditional financial regulations, and their collateral assets are mainly fiat, primarily invested in US Treasuries and savings, with centralized single-point risks and low capital efficiency.
Decentralized stablecoins like DAI from MakerDAO generally require 120%-150% over-collateralization, and considering the safety margin to avoid liquidation, the actual collateralization ratio may exceed 200%, resulting in low capital efficiency, and in extreme market volatility, the collateral assets of customers may be liquidated, causing additional liquidation losses.
Ethena's USDe has a collateralization ratio close to 1 USD: 1 USDe, and with the Delta-neutral hedging strategy, the capital efficiency is very high, while the stability is also guaranteed.
More importantly, Ethena's positioning allows other projects in the stablecoin arena to also become Ethena's partners. For example, Sky, Frax, and Usual have already integrated/combined Ethena's products into their own products.
OES custodial model ensures asset safety
Ethena currently collaborates with multiple custodians, including Copper, Ceffu, and Cobo. The collaboration adopts the OES (Off-Exchange Settlement) model, in which the Backing Assets do not need to leave the on-chain wallet, so there is no need to worry about the risks of CEXs; nor the risks of the custodians, as the custodians cannot independently control these custodial assets. Taking Copper as an example, these Backing Assets are stored in an off-exchange vault, with Ethena, Copper, and the off-exchange vault each holding one key, and two parties need to sign to execute transactions; or they are stored in a bankruptcy-remote trust.
Integrating traditional finance to grow USDe
Ethena connects the funds of CeFi, DeFi, and TradFi through the stablecoin USDe, and by capturing the interest rate differences between these three areas (exchanges, on-chain, and traditional finance), it can bring higher returns to customers.
TradFi generally does not have many high-yield products, but the low-yield fixed-income market is very large. In the Crypto sector, the demand for leverage trading has led to more demand for fiat (US dollar stablecoins), which often creates "risk-free" high-yield opportunities in the Crypto industry.
Ethena acts as a bridge, integrating traditional finance to strengthen USDe. When the Fed's interest rate is low (or in a rate-cutting cycle), Crypto trading will be more active, and the funding rate of Crypto market perpetual contracts will also be relatively high, allowing Ethena's short futures positions used for Delta hedging to earn more funding fees. This results in a phenomenon where when traditional finance yields are low, customers can actually get higher returns through Ethena.
Therefore, iUSDe can meet the asset allocation needs of traditional finance customers during low-interest-rate periods. This may also be part of the reason why Franklin Templeton and F-Prime Capital, the venture capital arm of Fidelity Investments, invested $100 million in Ethena's strategic round last December. In addition, the USDtb launched by Ethena in collaboration with BlackRock BUIDL may also drive a large amount of capital from TradFi to flow into Ethena and then into the Crypto market.
IV. Project Development Status
Ethena's USDe has become the third-largest US dollar stablecoin. As of March 7, 2025, the issuance of USDe has reached over $5.5 billion, second only to USDT and USDC. The Transfer Volume ranks fourth, only behind USDT, USDC, and DAI. However, the number of Active Addresses is relatively low, with only 1,612, and the C-end application scenarios need to be expanded. Ethena's revenue has also developed rapidly, making it the second-fastest crypto startup to reach $100 million in revenue, after Pump.fun.
Ethena has become a critical cornerstone for many DeFi protocols. Over 50% of Pendle's TVL is attributed to Ethena; about 25% of Sky's revenue is attributed to Ethena; approximately 30% of Morpho's TVL earnings come from utilizing Ethena assets; Ethena is the fastest-growing new asset on Aave; most EVM-based Perps have integrated USDe as collateral.
Ethena is building an ecosystem around USDe. According to the information on the Ethena website, two projects will be launched in Q1 2025 - the decentralized trading platform Ethereal and the on-chain trading protocol Derive (supporting options, perpetuals, and spot trading). In terms of external cooperation, Ethena has also been stable, collaborating with BlackRock to launch USDtb and with the Trump family's DeFi project World Liberty Financial.
Ethena also has some risk points:
The core earnings of USDe are unstable - as mentioned earlier, USDe has three main sources of income: the deposit interest rate of the Backing Stablecoin, the funding fee income of the short futures position, and the staking income of the ETH in the Backing Assets. Among them, the funding fees of the futures position may experience persistent negative funding rates during a bear market, leading to a loss of USDe's earnings.
The CEX's ADL mechanism may cause the Delta-neutral strategy to be ineffective - because CEXs have an automatic deleveraging (ADL) mechanism, which may affect Ethena's Delta-neutral strategy during specific periods.
Partner relationships may bring liquidity risks - Bybit is the exchange with the highest adoption rate of USDe, holding nearly $700 million USDe at its peak. Meanwhile, Mantle, a Layer2 closely related to Bybit (the co-founder of Bybit founded the BitDAO ecosystem that merged with Mantle), is the second-largest chain in terms of USDe supply. The recent Bybit hack incident triggered over $120 million in USDe redemption demand, and while Ethena currently has $1.9 billion in Liquid Stables Backing Assets, which is sufficient to cover these sudden surges in redemption demand, it cannot be ruled out that there may be massive concentrated redemptions exceeding its Liquid Stables reserves in the future, leading to short-term liquidity risks.
V. Investment Value of Ethena (ENA)
ENA currently has an FDV of $5.6B and a circulating market cap of $2B. Ethena has completed three rounds of financing, with amounts of $6M, $14M, and $100M, respectively, with the second round valued at $300M, and the current token price still has over 18x potential upside.
Before May 5, 2025, the circulating Tokens are mainly 2% from the Binance Launchpool, with the foundation and team shares still in linear unlocking. In April, some of the OTC purchase shares will start unlocking, with a cost price of around $0.25; starting May 5, the shares of investment institutions will linearly unlock at a rate of over 7.8 million ENA per month.
The recent overall Crypto market correction has weighed heavily on ENA. BTC has retreated 25% from its high, ETH has retreated 50% from its high, and ENA has retreated about 70% from its high. The aforementioned upcoming ENA Token unlocks may have already been sufficiently reflected in the current token price.
In summary, Ethena's token price is under pressure in the short to medium term, but the core business of the project has long-term value.
