Forward the Original Title‘Ethena: A new generation of currency Fed’

1. Who is behind Ethena?

Ethena’s team members

Ethena team members have rich backgrounds and have deep professional knowledge and practical experience in the fields of Crypto, finance and technology. Founder, Guy Young, once worked in a $60 billion hedge fund and founded Ethena after the collapse of Luna; 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 status

According to Rootdata, Ethena has undergone three rounds of financing, accumulating a total of $119.5 million in funding. Key leading investors include Dragonfly, Maelstrom Capital, and Brevan Howard Digital. Ethena has attracted the attention and investment of numerous well-known investment institutions, which not only brought substantial funding for Ethena’s development but also provided valuable industry resources for its business growth. Ethena’s investors include exchanges (such as YZi Labs, OKX Ventures, HTX Ventures, Kraken Ventures, Gemini Frontier Fund, and Deribit), market makers (such as GSR, Wintermute, Galaxy Digital, and Amber Group), and traditional financial institutions (such as PayPal Ventures, Franklin Templeton, and F-Prime Capital).

2. What is Ethena?

In a nutshell, Ethena is a Synthetic Dollar protocol that has introduced the USDe stablecoin and the sUSDe dollar savings asset. The stability of USDe is supported by crypto assets and corresponding delta-neutral hedged (short futures) positions.

From the perspective of the project mission, Ethena aims to connect funds in the three fields of CeFi, DeFi, and TradFi through the stable currency 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 among DeFi, CeFi, and TradFi.

The mechanism of stablecoin USDe

Minting/Redemption Mechanism: Only two whitelisted independent legal minters (Ethena GmbH, Ethena BVI Limited) are eligible for minting/redemption of USDe. Minters need 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 mint of Ethena Protocol USDe Mint and Redeem Contract V1

Recently, a USDe minting took place via the upgraded Ethena Protocol USDe Mint and Redeem Contract V2.

This is a record of USDe being redeemed for USDT. During minting and redemption, the pricing of Backing Assets is determined and continuously verified using multiple 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, programmatic delta-neutral strategy.

sUSDe’s revenue sources

The revenue for sUSDe originates from the management and utilization of collateral by Ethena.

• When Ethena receives collateral, it can hold it as a stablecoin and earn a fixed interest rate on deposits;
• You can also entrust the custodian to the selected CEX and set up airdrop futures positions in the CEX to hedge the price fluctuations of Backing Assets while earning funding rates;
• If the Backing Assets spot is ETH, you can also stake it and earn ETH Staking APR.

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

The purpose of stablecoins (USDe/sUSDe/iUSDe)

In DeFi:

• USDe/sUSDe can serve as collateral in lending protocols like AAVE and Spark.
• USDe/sUSDe can be used as margin collateral on Perps DEX platforms.
• USDe/sUSDe can act as collateral in Stablecoin Protocols.
• USDe/sUSDe can be utilized as the underlying asset in Interest Rate Swap Protocols.
• USDe can be used as a quote currency in Spot DEX trading pairs.

In the CeFi space:

• USDe serves as a quote currency in CEXs (composing trading pairs);

In the field of TradFi:

• iUSDe is a stablecoin launched by Ethena for the TradFi market. It allows regulated traditional companies to subscribe, allowing these traditional investment institutions to provide high yields in the Crypto market to traditional customers without having any contact with Crypto.

3. Ethena’s innovations

Delta-Neutral Strategy to Hedge Backing Assets’ Price Volatility

Many stablecoin projects that use crypto assets as backing have ultimately failed due to insolvency, often caused by the lack of proper hedging against the price fluctuations of their backing assets. Ethena stands out as the first project to apply a Delta-Hedging algorithm and an automated, programmatic execution model to manage backing asset price volatility. This approach keeps the portfolio’s Delta value close to zero. While Ethena’s early Delta-Hedging algorithm and execution model operated as a “black box,” posing potential risks to its ability to maintain a delta-neutral position in the long term, this stability mechanism itself represents a notable innovation. In the future, Ethena may shift to an open RFQ (Request for Quotation) model, allowing multiple market makers to compete in executing hedging tasks.

Under normal circumstances, 1 USDe = 1 USDC during redemption. However, if the hedging mechanism fails or the funding rates on the short futures positions result in losses, the value of the asset reserves may decline. In such cases, the redemption quote for USDe holders will reflect a proportional reduction in value. Additionally, the displayed redemption quote will include a 10 basis point (0.1%) compensation fee.

Significantly Higher Capital Efficiency Than Most Stablecoins

Centralized Stablecoins like USDT and USDC are heavily influenced by traditional financial regulations. Their collateral is primarily held in fiat currency, usually in the form of U.S. Treasury bonds and savings accounts. This reliance on centralized assets poses a single point of failure risk and results in relatively low capital efficiency.

Decentralized Stablecoins like MakerDAO’s DAI typically require 120%-150% over-collateralization. Considering the safety margin required to avoid liquidation, the actual collateral ratio may exceed 200%, further reducing capital efficiency. Moreover, during extreme market volatility, users risk additional liquidation losses if their collateral is forcibly liquidated.

In contrast, Ethena’s USDe has achieved an asset collateral ratio close to 1 USD : 1 USDe. Combined with its delta-neutral strategy to hedge price volatility, USDe ensures both high capital efficiency and strong stability.

A crucial advantage of Ethena’s positioning is that other stablecoin projects can collaborate with Ethena. For instance, Sky, Frax, and Usual have already integrated Ethena’s products into their offerings.

OES Custody Model for Asset Security

Ethena collaborates with multiple custodians, including Copper, Ceffu, and Cobo. These partnerships utilize the OES (Off-Exchange Settlement) model, where backing assets remain securely in on-chain wallets. This approach mitigates the risks associated with centralized exchanges (CEX) and custodians, as the custodians cannot independently control the stored assets. For example, when Copper acts as the custodian, the backing assets are stored in an off-chain vault. Ethena, Copper, and the vault each hold a separate key, requiring at least two signatures to authorize any transaction. Alternatively, the assets may be held in a bankruptcy-remote trust, adding another layer of protection.

Integrating Traditional Finance to Expand USDe’s Growth

Ethena strategically bridges the worlds of CeFi, DeFi, and TradFi through its USDe stablecoin. By capturing interest rate differentials across these sectors (exchanges, on-chain platforms, and traditional financial institutions), Ethena enables clients to achieve higher yields, effectively blending the benefits of crypto and traditional finance.

In TradFi (Traditional Finance), there are generally not many high-yield products, but the low-yield fixed-income market is extremely large. In the Crypto sector, due to users’ demand for leveraged trading, there is a higher demand for currency (specifically USD stablecoins), which often creates “risk-free” high-yield opportunities in the crypto industry.

Ethena acts as a bridge, combining traditional finance with the expansion of USDe. When the Federal Reserve’s interest rates are low (or during a rate-cutting cycle), crypto trading tends to become more active, and perpetual contract funding rates in the crypto market are typically higher. As a result, Ethena’s delta-hedged short futures positions can generate greater funding rate returns. This creates an interesting phenomenon — when traditional finance yields are low, clients may actually achieve higher returns through Ethena.

As a result, iUSDe can meet the asset allocation needs of traditional financial clients during periods of low interest rates. This may be one of the reasons why Franklin Templeton and Fidelity Investments’ venture arm, F-Prime Capital, invested $100 million in Ethena’s strategic round in December last year. Additionally, Ethena’s collaboration with BlackRock’s BUIDL to launch USDtb could further drive significant capital inflows from TradFi into Ethena, ultimately channeling funds into the crypto market.

4. Project development status

Ethena’s USDe has grown to become the third-largest USD stablecoin. As of March 7, 2025, the total issuance of USDe has surpassed $5.5 billion, ranking just behind USDT and USDC. In terms of transfer volume, USDe ranks fourth, following USDT, USDC, and DAI. However, the number of active addresses remains relatively low at just 1,612, indicating that retail adoption still requires expansion. Ethena’s revenue growth has been rapid — it is the second-fastest cryptocurrency startup to achieve $100 million in revenue, trailing only Pump.fun.

Ethena has become a crucial cornerstone for many DeFi protocols. Over 50% of Pendle’s total value locked (TVL) is attributed to Ethena, while approximately 25% of Sky’s revenue is linked to Ethena. Around 30% of Morpho’s TVL earnings come from utilizing Ethena’s assets. Additionally, Ethena has emerged as the fastest-growing new asset on Aave, and most EVM-based perpetual contract platforms have integrated USDe as collateral. Ethena is actively building an ecosystem around USDe. According to information published on Ethena’s official website, two new projects are set to launch in Q1 2025 — a decentralized exchange platform called Ethereal and an on-chain trading protocol named Derive, which will support options, perpetual contracts, and spot trading. In terms of external partnerships, Ethena has also been steadily expanding its collaborations. It has partnered with BlackRock to launch USDtb and has also formed an alliance with the Trump family’s DeFi project, World Liberty Financial.

Ethena also faces some risks:

The core revenue of USDe is unstable. As previously mentioned, USDe’s revenue comes from three main sources: interest income from deposits of backing stablecoins, funding rate income from short futures positions, and staking rewards from ETH held as backing assets. Among these, funding rates on short futures positions can experience prolonged negative rates during bear markets, which may result in revenue deficits for USDe.

The ADL (Automatic Deleveraging) mechanism of centralized exchanges (CEXs) could potentially disrupt Ethena’s delta-neutral strategy. Since CEXs have an automatic deleveraging mechanism, this may affect Ethena’s delta-neutral strategy under certain conditions.

There is also potential liquidity risk stemming from its partners. Bybit is the exchange with the highest USDe adoption, having held nearly $700 million in USDe at its peak. Furthermore, Mantle, a Layer 2 network closely tied to Bybit (formed by the merger of Bybit co-founder’s BitDAO and the Mantle ecosystem) is the second-largest chain in terms of USDe supply. Following a hacking incident at Bybit, there was a surge in redemption demand exceeding $120 million in UcSDe. Currently, Ethena holds $1.9 billion in liquid stablecoins as backing assets, which is sufficient to cover this sudden surge in redemption requests. However, the risk remains that future redemption demands could exceed Ethena’s liquid stable reserves, potentially creating short-term liquidity risks.

5. Ethena (ENA) investment value

Currently, ENA has a fully diluted valuation (FDV) of $5.6 billion and a circulating market cap of $2 billion. Ethena has completed three funding rounds, raising $6 million, $14 million, and $100 million respectively. During the second round of funding, Ethena was valued at $300 million, meaning the current token price still reflects an 18x+ return.

Until May 5, 2025, the circulating tokens are primarily composed of the 2% Binance Launchpool allocation, along with foundation and team shares that are undergoing linear vesting. In April, some OTC-purchased allocations will begin unlocking, with a cost basis of approximately $0.25 per token. Starting from May 5, an additional 78 million ENA tokens allocated to investment institutions will unlock each month in a linear vesting schedule.

The Crypto market has experienced an overall correction recently, and ENA’s performance has been very weak.BTC has retraced 25% from its high, ETH has retraced 50% from its high, and ENA has retraced approximately 70% from its high. The negative benefits that ENA Token is about to unlock may have been fully reflected in the current currency price.

In summary, while ENA faces short- to mid-term price pressure, the project’s core business model holds long-term value.

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