Author: 0xCousin
1. Who is behind Ethena?
Ethena Team Members
Ethena team members have rich backgrounds and possess deep expertise and practical experience in fields such as Crypto, finance, and technology.
Founder G (Guy Young) used to work in a hedge fund with a market value of US$60 billion. After Luna went bankrupt, he founded Ethena; COO Elliot Parker was previously a product manager at Paradigm and also worked at Deribit; Jane Liu, head of institutional growth in Asia Pacific, has served as head of investment research at Fundamental Labs and head of institutional partnerships and fund relations at Lido Finance.
Ethena’s financing
According to Rootdata, Ethena has completed three rounds of financing, with a total financing amount of US$119.5 million. 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 brought considerable funds to the development of Ethena, but also provided valuable industry resources for the business development of Ethena. Ethena's investment institutions include exchanges (YZi Labs, OKX Ventures, HTX Ventures, Kraken Ventures, Gemini Frontier Fund, Deribit, etc.), market makers (GSR, Wintermute, Galaxy Digital, Amber Group, etc.), and investment institutions with traditional financial backgrounds (Paypal Ventures, Franklin Templeton, F-Prime Capital, etc.).
2. What is Ethena?
In a nutshell, Ethena is a synthetic dollar protocol that has launched the US dollar stablecoin USDe and the US dollar savings asset sUSDe. The stability of USDe is supported by crypto assets and corresponding Delta neutral hedging (short futures) positions.
From the perspective of the project mission, Ethena aims to connect the funds in the three fields of CeFi, DeFi, and TradFi through the stablecoin USDe. At the same time, Ethena captures the interest rate differences of funds in these three fields (exchanges, on-chain, and traditional finance), thereby providing customers with more returns. If the scale of USDe grows large enough, it may also promote the convergence of capital and interest rates among DeFi, CeFi, and TradFi.
The mechanism of stablecoin USDe
Minting/Redemption Mechanism: Only two independent legal person minters (Ethena GmbH and Ethena BVI Limited) listed in the whitelist are eligible for minting and redemption of USDe. Minters need to use BTC/ETH/ETH LSTs/ USDT/USDC as collateral and interact with the USDe Mint and Redeem Contract. As shown below:
The first USDe minting of 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 redeeming USDT
At the time of minting/redemption, the pricing of Backing Assets is obtained and continuously verified by multiple different sources, including CeFi Exchange, DeFi Exchange, OTC Markets, and Oracles such as Pyth and RedStone to ensure that the pricing is correct and reasonable.
USDe stability maintenance mechanism: To ensure the stability of USDe, the key is to hedge the price fluctuations of Backing Assets. Ethena adopts an automated and programmed Delta neutral strategy.
sUSDe’s revenue sources
The income of sUSDe comes from Ethena's disposal of collateral.
When Ethena receives collateral, it can hold it as a stablecoin and earn a fixed deposit rate;
You can also entrust the selected CEX through a custodian, set up an airdrop futures position in the CEX to hedge the price fluctuations of the Backing Assets and earn funding rates at the same time;
If the Backing Assets spot is ETH, you can also do Staking and earn ETH Staking APR.
These earnings will be distributed to users in the form of returning more USDe when they cancel their pledged sUSDe and redeem USDe.
Uses of Stablecoins (USDe/sUSDe/iUSDe)
In the DeFi space:
- USDe/sUSDe is used as collateral for lending protocol platforms such as AAVE and Spark;
- USDe/sUSDe is used as margin collateral for platforms such as Perps DEX;
- USDe/sUSDe as collateral for the Stablecoin protocol;
- USDe/sUSDe is used as the underlying asset of the interest rate swap agreement;
- USDe is used as the pricing currency in Spot DEX (constituting trading pairs);
In the CeFi space:
- USDe as the denominated currency in CEXs (constituting trading pairs);
In the TradFi space:
- iUSDe is a stablecoin launched by Ethena for the TradFi market. It allows regulated traditional companies to subscribe to it, allowing these traditional investment institutions to provide high returns in the Crypto market to traditional customers without any exposure to Crypto.
3. Ethena’s Innovations
Delta neutral strategy hedges the price fluctuations of Backing Assets
Many stablecoin projects with Crypto Assets as Backing Assets eventually became insolvent and led to exchange rate decoupling. The key is that the price fluctuations of Backing Assets were not hedged. Ethena is the first project to use the Delta-Hedging algorithm and execution model to perform automated and programmatic Delta-neutral hedging on Backing Assets, making the Delta value of the portfolio close to 0. Although Ethena's Delta-Hedging algorithm and execution model were a black box in the early days, whether it can continue to achieve Delta-neutral results in the long term is a potential risk point, and this stability maintenance mechanism is an innovation. In the later stage, it may turn to an open RFQ model, when various market makers can participate in the competition to execute hedging tasks.
Under normal circumstances, USDe is redeemed at a rate of 1 USDe = 1 USDC; if the hedging mechanism does not work, or the funding rate for hedging futures positions is in deficit, resulting in a decrease in the value of the asset reserve, the quote for USDe holders at redemption will include a corresponding reduction to reflect the proportional reduction in the redemption price, and the quote displayed to users includes a 10 basis point compensation fee.
Much higher capital efficiency than most stablecoin projects
Centralized stablecoins, such as USDT and USDC, which are collateralized by fiat currencies, are greatly affected by traditional financial regulation. Moreover, the collateral assets are mainly fiat currencies, which are basically based on buying U.S. Treasury bonds and savings. There are also centralized single-point risks and low capital efficiency.
Decentralized stablecoins, such as MakerDAO's DAI, generally require 120%-150% excess collateral. If the safety margin to avoid liquidation is taken into account, the actual collateral ratio may exceed 200%, which has low capital efficiency. In addition, when the market fluctuates extremely, if the customer's collateral assets are liquidated, it will cause additional liquidation losses.
Ethena's USDe has approached 1USD:1 USDe in terms of asset collateral ratio. It also uses a Delta neutral strategy to hedge against price fluctuations, making it highly capital efficient and ensuring stability.
More importantly, Ethena’s positioning allows other projects in the stablecoin track to become Ethena’s partners. For example, Sky, Frax, and Usual have already combined/integrated Ethena’s products into their own products.
OES custody model ensures asset security
Ethena currently cooperates with multiple custodians, including Copper, Ceffu, and Cobo. The cooperation adopts the OES (Off-Exchange Settlement) model. In this model, backing assets do not need to leave the on-chain wallet, so there is no need to worry about the risks of CEX; there is no need to worry about the risks of the custodian, because the custodian cannot control these custodial assets alone. Taking Cooper as an example, these backing assets are stored in an over-the-counter vault. Ethena, Cooper, and the over-the-counter vault each hold a key, and two parties need to sign to execute the transaction; or it is stored in a bankruptcy-remote trust.
Integrate traditional finance to make USDe bigger and stronger
Ethena uses the stablecoin USDe to link funds in the three fields of CeFi, DeFi, and TradFi. By capturing the interest rate differences of funds in these three fields (exchanges, on-chain, and traditional finance), it can bring higher returns to customers.
There are generally not many high-yield products in TradFi, but the low-yield fixed income market is very large. In the Crypto field, due to the user's demand for leveraged trading, there is more demand for currency (US dollar stablecoin), so that the Crypto industry often has "risk-free" high-yield opportunities.
Ethena acts as a bridge, integrating traditional finance to make USDe bigger and stronger. When the Fed's interest rate is very low (or in a rate cut cycle), Crypto transactions will be more active, and the perpetual contract funding rate in the Crypto market will be relatively high. Ethena's short futures positions used for Delta hedging can earn more funding rates. As a result, a phenomenon has emerged - when the yield of traditional finance is very low, customers can get higher yields through Ethena.
Therefore, iUSDe can meet the asset allocation needs of traditional financial customers in low-interest periods. This may also be part of the reason why Franklin Templeton and F-Prime Capital, a venture capital firm under Fidelity Investments, invested $100 million in Ethena's strategic round last December. In addition, USDtb, launched by Ethena in cooperation with BlackRock BUIDL, may also drive a large amount of funds from TradFi to Ethena and then into the Crypto market.
IV. Project Development Status
Ethena's USDe has become the third largest dollar stablecoin. As of March 7, 2025, the issuance of USDe has reached more than 5.5 billion US dollars, second only to USDT and USDC. Transfer Volume ranks fourth, second only to USDT, USDC, and DAI. However, the number of Active Addresses is small, only 1,612, and the C-end application scenarios need to be expanded. Ethena's revenue is also developing rapidly. It is the second fastest cryptocurrency startup to reach $100 million in revenue after Pump.fun.
Ethena has become a key cornerstone of many DeFi protocols. More than 50% of Pendle's TVL is attributed to Ethena; about 25% of Sky's revenue is attributed to Ethena; about 30% of Morpho's TVL comes from leveraging Ethena assets; Ethena is the fastest growing new asset on Aave; most EVM-based Perps have integrated USDe collateral;
Ethena is building an ecosystem around USDe. According to public information on Ethena's official website, two projects will be launched in Q1 2025 - the decentralized trading platform Ethereal and the on-chain trading protocol Derive (supporting options, perpetual and spot trading). Ethena is also very stable in external cooperation. It has launched USDtb in cooperation with BlackRock and reached cooperation with the Trump family's DeFi project World Liberty Financial.
Ethena also has some risks:
USDe's core income is unstable - As mentioned earlier, USDe has three major sources of income, one is the deposit interest rate income of Backing Stablecoin, the second is the funding rate income of short futures positions, and the third is the staking income of ETH in Backing Assets. Among them, the funding rate of futures positions may have a continuous negative funding rate in a bear market, resulting in a loss of USDe income.
CEX’s ADL mechanism may cause the Delta neutral strategy to fail - because CEX has an automatic deleveraging (ADL) mechanism, it may affect Ethena’s Delta neutral strategy at a certain period of time.
Partners may bring liquidity risks - Bybit is the exchange with the highest adoption rate of USDe, holding nearly 700 million USDe at its peak. At the same time, Layer2 Mantle (a merger of BitDAO and Mantle ecosystems founded by Bybit co-founders), which has a close relationship with Bybit, is the second largest chain in terms of USDe supply. The Bybit hacking incident triggered a demand for more than $120 million in USDe redemption. Ethena currently has $1.9 billion in Backing Assets in Liquid Stables, which is enough to cover these sudden surges in redemption demand. However, it cannot be ruled out that there may be a massive concentrated redemption in the future that exceeds its Liquid Stables reserves, thus bringing short-term liquidity risks.
5. Ethena (ENA) investment value
ENA currently has a FDV of 5.6B and a circulating market value of 2B. Ethena has completed three rounds of financing, with financing amounts of 6M, 14M, and 100M respectively. The second round of valuation was 300 million US dollars, and the current coin price still has an 18x+ return.
Before May 5, 2025, the circulating tokens are mainly 2% of Binance Launchpool, and the foundation and team shares are also in linear unlocking. In April, some OTC purchased shares will begin to unlock, with a cost price of about 0.25U; starting from May 5, the shares of investment institutions will be increased every month to unlock 78 million + ENA/month linearly.
The overall Crypto market has recently pulled back, and ENA has performed very weakly. BTC has pulled back 25% from its high, ETH has pulled back 50% from its high, and ENA has pulled back about 70% from its high. The negative impact of the ENA Token that is about to be unlocked may have been fully reflected in the current coin price.
In summary, Ethena's coin price is under pressure in the short and medium term, and the project's core business has long-term value.
