Editor's Note: Ethena maintains a $5 billion market cap stablecoin USDe with a 26-person team, hedging ETH, BTC, and other asset fluctuations through a delta-neutral strategy to maintain $1 parity while offering double-digit annual yields. Its automated risk management and multi-platform hedging have built a strong moat, successfully navigating market volatility and the Bybit hacking incident. Ethena plans to drive USDe circulation to $25 billion through iUSDe, the Converge chain, and Telegram app, becoming a financial hub connecting DeFi, CeFi, and TradFi.
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Have you ever tried eating hot noodles while riding a roller coaster? It sounds crazy, but this is the best analogy for what @ethena_labs does every day: maintaining a $5 billion stablecoin (USDe) that always stays pegged to $1, despite constant crypto market fluctuations. All this is achieved by a 26-person team led by founder @gdog97_. This article will dive deep into Ethena's secret sauce, explain why it's hard to replicate, and outline how Ethena plans to push USDe circulation to $25 billion.
Hedging Billions in Volatility
Stablecoins might seem boring on the surface: $1 is $1, right? But looking inside Ethena's mechanism reveals it's anything but simple. Instead of using bank dollars to back the stablecoin, Ethena uses a powerful asset portfolio including ETH, BTC, SOL, ETH LSTs (liquid staking tokens), and $1.44 billion of USDtb (a Treasury-backed stable asset). These assets are continuously shorted in major derivatives markets to ensure any collateral price fluctuations are offset by corresponding gains and losses in short positions.
If ETH rises 5% and your hedging ratio is skewed, it could expose tens of millions of dollars in risk. If the market crashes at 3 AM, the risk engine must immediately rebalance collateral or close positions. The margin for error is extremely small. However, Ethena has managed billions in daily hedging through the roller coaster market of 2023-2024 without a single breakdown (no depegging, no margin liquidation, no funding shortage).
During the Bybit hacker event, Ethena maintained solvency without any collateral loss. Traditional hedge funds might need an entire floor of analysts and traders to manage such volatility, but Ethena achieved this with a lean team and zero mistakes.
Within months of launch, Ethena became the largest counterparty on multiple centralized exchanges. Its hedging trades even impacted liquidity and order book depth, but few noticed because the stablecoin "just works".
Regarding high yields: Ethena offers double-digit annual returns during bullish markets. Initially, this might remind one of Terra/LUNA and its disastrous 20% Anchor protocol. However, Ethena's yields come from real market inefficiencies (staking rewards plus positive perpetual contract funding rates), not token minting or unsustainable subsidies.
How Ethena's Delta Neutral Magic Works
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Meanwhile, Ethena is developing a Telegram-based application that will introduce high-yield dollar savings to ordinary users through a user-friendly interface, bringing hundreds of millions of users into sUSDe. In terms of infrastructure, the Converge chain weaves together DeFi and CeFi tracks, with each new integration bringing cyclical growth to USDe's liquidity and utility.
Notably, sUSDe's returns are negatively correlated with actual interest rates. When the Federal Reserve cut rates by 75 basis points in the fourth quarter of 2024, the fund's yield jumped from around 8% to over 20%, highlighting how declining macro interest rates inject potential into Ethena's earnings.
This is not a slow, phased advancement, but a cyclical expansion: broader adoption enhances USDe's liquidity and yield potential, thereby attracting larger institutions and driving further supply growth and more solid anchoring.
Looking Forward
Ethena is not the first stablecoin to promise high yields or position itself as an innovative method. The difference is that it delivers on its promises, with USDe remaining firmly anchored at $1 even during the most severe market shocks. Behind the scenes, it operates like a high-level institution, shorting perpetual futures and managing staking collateral. However, what ordinary holders experience is a stable, yield-bearing dollar that is simple and easy to use.
Expanding from $5 billion to $25 billion is not easy. Stricter regulatory scrutiny, larger counterparty exposure, and potential liquidity tightening may bring new risks. However, Ethena's multi-asset collateral (including $1.44 billion in USDtb), robust automation, and solid risk management suggest it is more capable of handling challenges than most projects.
Ultimately, Ethena demonstrates a method of navigating crypto market volatility using delta-neutral strategies at an astonishing scale. It outlines a future vision where USDe becomes the core of every financial realm, from DeFi's permissionless frontier and CeFi trading desks to TradFi's massive bond market.
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