Ethena: A new generation of cryptocurrency federation

1. Who is behind Ethena?

Ethena team members

Ethena team members have rich backgrounds and have deep professional knowledge and practical experience in fields such as Crypto, finance and technology.

Founder G (Guy Young) worked 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 situation

According to Rootdata information, Ethena has completed three rounds of financing, with a total financing amount of US$119.5 million. The leading investors mainly 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. USDe's stability is supported by crypto assets and corresponding Delta neutral hedging (short futures) positions.

From the perspective of the project mission, Ethena aims to link funds in the three fields of CeFi, DeFi, and TradFi through the stablecoin USDe. At the same time, Ethena captures the interest rate difference of funds in these three fields (exchanges, on-chain, and traditional finance), thereby providing customers with more benefits. If the scale of USDe grows large enough, it may also promote the convergence of capital and interest rates between DeFi, CeFi, and TradFi.

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. The minter needs to use BTC/ETH/ETH LSTs/ USDT/USDC as collateral to 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 Ethena protocol USDe Mint and Redeem Contract V2

14px;">This is a record of USDe redeeming USDT

When minting/redeeming, 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.

Source of sUSDe's income

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;

• It can also be entrusted to the selected CEX through a custodian, and an airdrop futures position can be set up 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, it can also be staked to earn ETH Staking APR.

These earnings will be distributed to users in the form of returning more USDe when users cancel the pledge of sUSDe and redeem USDe.

Uses of stablecoins (USDe/sUSDe/iUSDe)

In the DeFi field:

• 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 is used 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 a trading pair);

In the CeFi field:

• USDe is used as the pricing currency in CEXs (constituting a trading pair);

In TradFi Field:

• iUSDe is a stablecoin launched by Ethena for the TradFi market, allowing regulated traditional companies to subscribe, so that these traditional investment institutions can provide high returns in the Crypto market to traditional customers without exposure to Crypto.

3. Ethena's Innovation

Delta Neutral Strategy Hedges 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 perform automated and programmatic Delta neutral hedging of Backing Assets using the Delta-Hedging algorithm and execution model, making the Delta value of the investment portfolio close to 0. Although Ethena's Delta-Hedging algorithm and execution model are a black box in the early stage, whether it can 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 perform hedging tasks.

Under normal circumstances, when USDe is redeemed, it is redeemed according to the benchmark of 1 USDe = 1 USDC; if the hedging mechanism does not work, or the funding rate of the hedging futures position is in deficit, resulting in a decrease in the value of the asset reserve. Then the quote for USDe holders at the time of redemption will include a corresponding reduction to reflect the proportional reduction of the redemption price, and the quote displayed to the user includes a 10 basis point compensation fee.

Capital efficiency far higher than most stablecoin projects

Centralized stablecoins, such as USDT and USDC, are greatly affected by traditional financial supervision, and the collateral assets are mainly fiat currencies, basically buying US Treasury bonds and savings, and there are also centralized single-point risks, and capital efficiency is not high.

Decentralized stablecoins, such as MakerDAO's DAI, generally require 120%-150% overcollateralization. If the safety margin to avoid liquidation is considered, the actual collateralization rate may exceed 200%, which is low in capital efficiency. In addition, when the market is extremely volatile, 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 collateralization rate. At the same time, it is supplemented by Delta neutral strategy to hedge price fluctuations. The capital efficiency is very high and the stability is guaranteed.

More importantly, Ethena's positioning allows other projects in the stablecoin track to become Ethena's partners. For example, Sky, Frax, and Usual have combined/integrated Ethena's products in 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 signatures are required to execute transactions; or they are 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 together. By capturing the interest rate difference 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 leverage trading needs, there is more demand for currency (US dollar stablecoin), so that the Crypto industry often has "risk-free" high-yield opportunities.

Ethena plays a bridge role, integrating traditional finance to make USDe bigger and stronger. When the Federal Reserve 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 during low interest rates. 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.

Fourth, the status of project development

Ethena's USDe has become the third largest US 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 risk points:

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 pledge income of ETH in Backing Assets. Among them, the funding fee 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 in a certain period.

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, which is closely related to Bybit (BitDAO founded by Bybit co-founders merged with the Mantle ecosystem), 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 that exceeds its Liquid Stables reserves in the future, thus bringing short-term liquidity risks.

V. Investment value of Ethena (ENA)

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, and the current coin price still has an 18x+ return.

Before May 5, 2025, the circulating tokens are mainly 2% of Binance Launchpool, and there are also foundation and team shares in linear unlocking. In April, some OTC purchases 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 7800w+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 being 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 core business of the project has long-term value.