Ethena (ENA)'s USDe stablecoin has recently become a viral sensation, with its market capitalization soaring from $140 million to $7.2 billion in just one year, a more than 50-fold increase. Following the passage of the GENIUS Act, Ethena Labs quickly partnered with Anchorage Digital, a US federal crypto bank, to launch USDtb, the first GENIUS-compliant, federally regulated stablecoin, bringing a compliant stablecoin to US retail investors. Simultaneously, they launched StableCoinX, raising $360 million with plans to list on the Nasdaq and initiating a $260 million buyback program, sparking market enthusiasm. Recently, Ethena founder Guy Young was interviewed by Hive Mind host Jose Madu, revealing the reasons behind Ethena's rapid rise in the stablecoin market and his views on the current market landscape. The following is an excerpt from the podcast: Q1: Guy, you made a major announcement this week regarding USDe assets, entering the Treasury bond company space. Can you share some background and why this is significant? Guy Young: Of course. We started preparing for this project earlier this year, in December or January. Back then, the market wasn't as hot as it is today, where similar projects emerge almost daily. Seeing Circle's performance in the public markets, we realized that demand for this type of theme far outstripped supply in traditional markets, and that a significant amount of capital was looking to invest in it, presenting an interesting opportunity for us. From a macro perspective, I've been concerned about altcoin flows within the cryptocurrency market for the past 18 months. The total altcoin market capitalization peaked at nearly the same level in 2021 and 2024, just under $1.2 trillion. This is a strong signal to me that there's a limited amount of global capital willing to invest in these 99% frothy tokens. The industry needs to mature; to break through $1.2 trillion, it must attract equity investors with large-scale capital. Our focus isn't on short-term trading of assets at high premiums, but on opening up a broader investor base. Even offering token access at 1x net asset value is better than completely denying access to these markets. It's an interesting match: traditional markets are in high demand for these themes, while the crypto market faces liquidity challenges, which our solution addresses. Q2: We're very excited about the USDe asset. When will trading begin? How much capital has been raised in total? Can you share more details? Ethena Labs tweeted that it has the highest cash-to-asset market capitalization ratio of any project. Can you elaborate on this? Guy Young: The total project size is approximately $360 million, of which $260 million is cash. Our cash holdings are significantly higher than those of other similar projects, as many are merely exit liquidity vehicles, with investors investing in tokens hoping to sell them on the open market. Our goal is to introduce new cash to address liquidity issues. Ethena raised approximately 8% of its circulating market capitalization, which will be used to purchase tokens on the open market. Hype, the second-largest project, raised less than 2%. This is highly significant in the market. Our project is large relative to the size of its underlying assets, and the cash raised will have a significant impact on our tokens. For example, $500 million would have a minimal impact on Ethereum, but a significant one on our tokens. Q3: There is strong demand for pure equity exposure in stablecoins, an increasingly friendly regulatory environment, such as the passage of the Genius Act, and the market's enthusiastic response to Circle. Can you discuss the challenges Circle faces, such as the impact of falling Treasury bond rates on your business? Guy Young: Thank you for your question. I'd like to explain Ethena's appeal, as well as USDe's operating mechanisms and competitive advantages, to both public market investors and institutional audiences. Stablecoins have diverse use cases, ranging from serving as collateral for trading on centralized exchanges to providing dollar payment and remittance channels in developing countries. Going forward, each issuer will focus on a specific market segment rather than attempting to be a one-size-fits-all solution. Ethena's strategy is clear: We focus on use cases that are 10x better than other players. As a startup competing against multi-billion dollar giants, we don't believe we can win across the board. Instead, we've chosen to focus on savings use cases. A structurally higher-return USD asset is a better savings tool than a non-returning asset. This advantage also extends to other scenarios, such as using it as collateral for perpetual contracts or embedding it in DeFi applications to create new products. This is Ethena's niche market and an area where we're driven by growth. In 2024, USDe's average annualized yield reached 18%, four times Circle's interest income. Adjusted for returns, Ethena's asset size is equivalent to $28 billion, comparable to Circle's. This means we can rival giants in revenue without the need for a massive balance sheet. As for competitors, we view Tether as a partner, not a rival. Many people don't realize that Ethena actually empowers Tether holders around the world. In centralized finance (CeFi), 70% of the perpetual swap market is denominated in Tether. Every $1 of collateral flowing into Ethena translates into approximately 70 cents of Tether supply growth. Tether doesn't provide a yield, as its yield is paid indirectly by the market through futures and basis trading. Ethena productizes Tether's basis capture use case in CeFi, creating a new product. You could say Ethena is a "yield version" of Tether. The majority of the collateral we hold is Tether itself, which significantly drives Tether's growth. Q4: For those of you who may not be familiar with Ethena, could you briefly explain how you generate yield? Guy Young: The core strategy is cash arbitrage or basis trading: going long on spot and short on futures or perpetual contracts. Cryptocurrency markets have funding rates, which can be simply understood as the cost of capital for long positions. These markets rise over time, and investors are willing to pay for leveraged long positions. Ethena profits by capturing the speculative premium in the derivatives market. Analogously, all US dollar assets or stablecoins are a form of lending. Buying Circle's USDC is equivalent to lending money to the US government in exchange for an IOU; buying Sky's US dollar assets is overcollateralizing Ethereum in DeFi; and USDe provides funding for long positions in CeFi. Different lending objects determine different rates of return. Q5: During the 2021 cycle, basis spreads for some major cryptocurrencies were as high as 50-60% for several months. However, now, with increased liquidity in the futures market and the entry of professional money managers and ETFs, basis spreads have compressed significantly. What dynamics are you experiencing internally? With the launch of long-tail assets like the Solana ETF and more opportunities for professional money managers, how do you think this will evolve? Guy Young: The capital pool for basis trading on ETFs and the CME (Chicago Mercantile Exchange) is very different from the capital pool in the cryptocurrency market. Institutions like Millennium cannot invest in the cryptocurrency market because they require AA-rated custodians. Therefore, traditional finance (TradFi) conducts a large amount of trading on the CME, where credit risk is almost zero, but cannot access the cryptocurrency market. This results in a significant difference between CME's basis and that of the cryptocurrency market, reflecting some of the exchange's credit risk. Data from 2024 shows that CME's cash-adjusted basis is approximately 6.5%, 150 basis points higher than Treasury yields, while Ethena's USDe yield is 18%, a gap of 1,000 basis points. While CME supports these transactions, trading through Ethena is more efficient. Many hedge funds invest in Ethena because USDe is not fully collateralized (sUSDe). When USDe is used as currency in AMMs (automated market makers) or order books, the collateralization ratio is not 100%, so Ethena's yield is consistently higher than that of capturing the basis independently. Although the basis will compress over time, we expect institutional capital to flow through Ethena as it is a more efficient channel. This is part of our investment rationale. Some have criticized the decline in basis from 60% at launch, but this is a natural phenomenon. Ethena has grown by lowering the cost of capital in the cryptocurrency market to reasonable rates in traditional finance (e.g., 10-12%), rather than 20-30%. Q6: People often focus on the high funding rates of certain coins, but Ethena has lowered these rates, which may mask the size of long positions or the degree of speculation. What are your thoughts on this? Guy Young: Indeed. The market is more overheated than before Ethena, especially for BTC and ETH. A good way to measure this is by looking at Hyperliquid's funding rates. Currently, Hyperliquid's funding rate is around 25%, while Binance's is 11%. There are two reasons for this: First, Hyperliquid has a more natural retail capital flow, while centralized exchanges have more institutional investors. Second, Hyperliquiquit doesn't have portfolio margin, so it can't fully collateralize a $100 perpetual contract with $100 in BTC. Therefore, its funding rate needs to be adjusted to be comparable to CeFi. Ethena isn't yet operating on Hyperliquid, so Hyperliquiquit reflects real retail capital flows unaffected by institutional capital and Ethena, making it an ideal reference point for judging the true market heat. Q7: The cryptocurrency space recently witnessed a long-awaited event—the passage of the Genius Act, the first federal law targeting stablecoins. You announced a partnership with Anchorage, which appears to make you the first stablecoin to comply with the Genius Act. Can you talk about the Genius Act, your perspective on it, the details of this partnership, and what it means for Ethena? Guy Young: We are transitioning our issuance structure from an offshore BVI entity to having Anchorage issue USDtb directly. Anchorage is the only federally regulated bank in the US handling cryptocurrency, and they will be launching a suite of products, similar to a "Genius service," for different issuers to meet compliance requirements. Our strategy is a two-pronged approach: through our partnership with Anchorage, USDtb will be Genius Act-compliant and usable anywhere in the US where payment stablecoins are permitted; while USDe will primarily exist in the offshore DeFi market, outside the regulated US financial system. Both markets are important, but we're excited about entering the US market because the primary use case for stablecoins is actually outside the US. Americans already have access to instant digital cash through apps like Venmo, just in a different form. The US market is also more competitive because money market funds coexist with stablecoins, limiting revenue potential. While we're excited about entering the US market, the offshore market remains the most dynamic operating venue. Tether's success demonstrates this, as they've focused on the offshore market from the beginning. Q8: I'm curious. The stablecoin market is so hot right now, and everyone's talking about it. Every major company seems to have their own stablecoin strategy, and there are a lot of infrastructure startups like Tether Chain and others building things. What are your thoughts on this? You should have deep market insights. What's the most interesting thing about the stablecoin market right now? Which ones are overvalued? Which ones are undervalued? Guy Young: I'm quite pessimistic about new issuers entering the market and competing with the incumbent giants. The market is excited about this topic, but finding a breakthrough is difficult. Stablecoin products are highly commoditized, making it difficult for startups to differentiate themselves from incumbent giants. Stablecoins must meet three conditions: they must be denominated in US dollars, otherwise they'll be out of business the next day; liquidity—it's impossible to reach Tether's $100 billion daily trading volume on day one; and third, returns. If stablecoins are backed by government bonds, profit margins will become a race to the bottom. Circle has already begun this race, sharing revenue with companies like Coinbase. I have a negative view of the unit economics and business models of stablecoin issuers. Tether is an exception; they established an unchallengeable position at a unique moment in time. No one can replicate their success at that particular moment. I am pessimistic about new issuers claiming to share 90% of the profits; it's a difficult path. For a business model to work, if you're only earning 5 to 10 basis points, you need $100 billion in scale to be an attractive investment. Therefore, I'm most pessimistic about this part of the market, even though we're also an issuer of both US dollars and stablecoins. Q9: We discussed stablecoins earlier. If $3.5 trillion becomes liquid stablecoins, especially into the crypto market, some of that money could flow into Bitcoin, which is very exciting. The crypto market has performed well recently, with the ETH to BTC ratio back above 0.03, outperforming BTC. Solana has also performed well. What are your thoughts? Will the market continue to rise? What stage of the cycle are we in? Guy Young: In the long term, I remain very bearish on ETH and other Layer 1 (L1) assets, believing them to be the most overvalued financial assets in history. In the short term, ETH's narrative has shifted. It's no longer competing with Solana for on-chain activity, but is positioned as a tool to attract traditional financial capital, competing with BTC. As long as these instruments trade at 2.5 to 4 times net asset value (NAV), the market won't decline. However, if the premium slips from 1.5 to 1, it could signal the end of the cycle. When new instruments cease to launch, premiums could collapse, as existing instruments require equity market buying. Without sufficient buying, the market could collapse. New capital is still flowing in, and market enthusiasm is high. For example, Saylor just increased its offering size from $500 million to $2 billion, and instruments are still trading at high premiums. This trend is likely to continue. However, we should be wary of signs of a slowdown in the number of new instruments, as this could be a market turning point. I won't comment on my own projects, but examples like Hyperliquid have already broken away from reliance on ETH or L1, growing through cash flow and acting like true equity-like assets. Altcoins need to mature, moving beyond being just L1 betas to developing independent revenue and users. In the future, five to ten projects like Hyperliquid may be priced based on equity investment logic, decoupling from L1. I believe BTC's dominance should reach 90%, and other L1 valuations should drop to one-tenth of their current levels. A few equity-like businesses will emerge, similar to the performance of Coinbase and Robinhood this year. Q10: Regarding Ethena, USDe has reached $6.8 billion in market capitalization. How much scale do you think the market can support? If everyone knows about Ethena's returns, how much can the perpetual futures market support? Guy Young: The market potential is enormous. Current open interest is approximately $110 billion to $120 billion, with a yield of 15-20%. The three major sources of cash flow in the crypto sector are Binance equity, Tether equity, and basis trading in the futures market. Ethena accounts for 6-10% of the derivatives market, and I believe it should reach 20-25%, or $20 billion to $30 billion, assuming no significant market growth. Last December, when the funding rate reached 30%, Ethena's scale had already reached $28.8 billion. If it were connected to traditional financial institutions, its scale could be even greater, with interest rates compressed to 10-12%. However, if L1's valuation declines, products that rely on L1, such as Hyperliquid and Ethena, will also be affected. A few projects like Pump make money through the issuance of new tokens and do not rely entirely on L1 valuation.
JinseFinance
Xu Lin
Joy