Currently Ethena is one of the projects attracting great attention from the community with an interest rate higher than 30%. Many questions arise about whether this is a Ponzi scheme. So let's analyze what risks Ethena has?
First of all, you need to understand Ethena. So what is Ethena?
Ethena is a protocol on Ethereum that provides a decentralized stablecoin USDe that does not rely on intermediaries. The stablecoin solution is developed based on the Delta-Hedging strategy.
Delta-Hedging is basically a true balance trading strategy, meaning your position will always be 0 during market fluctuations.
USDe aims to directly solve the âStablecoin Trilemmaâ:
Use Liquid Staking Token (LST) to facilitate scaling without overcollateralization, by securing equivalent short positions. USDe is stable with an unleveraged short position, ensuring neutral value from the moment of issuance.
Ethena enhances censorship resistance by separating collateral from the banking system and storing them on a decentralized platform, ensuring transparency and safety on-chain.
Is Ethena's USDe a ponzi scheme?
To be sure whether Ethena is a ponzi model or not, we first need to understand what a ponzi is:
Promising high profits: Promising to pay "super" profits to investors, often much higher than the market.
Attract new investors: Use profits from new investors to pay old investors. This creates the illusion of a successful investment model.
Collapse: The model collapses when there are no longer enough new investors to pay old investors. At this point, the scammer usually disappears with the remaining money.
So based on the above 3 factors we will analyze Ethena's operating model. Are Ethena's profits large enough to pay interest to investors?
Ethena generates profits from two main sources:
Interest from collateral: Users lock ETH, stETH, or BTC into Ethena to mint USDe. Profits come from staking these assets, creating a stable source of income.
Profit from Funding Rate when Short: Ethena uses a strategy of shorting tokens on the CEX exchange to take advantage of market fluctuations. This is a common strategy in both traditional and crypto financial markets.
-> Ethena's strategy is also quite popular in both traditional finance and crypto circles. So Ethena actually announces and generates actual profits to pay investors, not from other investors' money, so it is not enough to become a ponzi model. USDe interest rates are flexibly adjusted based on the effectiveness of the Ethena strategy. This shows that the project does not draw a fixed "pie" profit level.
Unlike UST, which relies on algorithms and does not create real value, Ethena's USDe has specific profit-generating activities. Ethena's downfall does not depend on attracting new users like a Ponzi scheme.
In general, USDe is not a Ponzinomics project as the yield obtained from USDe can be considered real yield from the market, but in return users have to bear many risks.
Because the interest rate is not fixed, the first risk users will bear is the risk of liquidation. Note that the interest rate for USDe is adjusted over time, meaning it is high when ETHENA is generating a lot of profit when the funding rate is positive. And it will decrease when the funding rate decreases, even if the funding rate is negative, it can cause investors to lose money when holding USDe. At that time, users will no longer have the incentive to hold USDe and withdraw assets from Ethena and withdraw USDe liquidity from liquidity pools.
In addition, Ethena may also be subject to other risks such as administrative risk, system malfunction risk, collateral risk,...
Whichever way you choose, remember:
Ethena is a complex model with many factors that are difficult to control.
Transparency is the key for Ethereum to build trust and develop sustainably.
The project still has the ability to turn into a super Ponzi model if the model has some risky problem that the project owner still deliberately hides and continues to invite more users to participate in the project. Therefore, transparency will be a prerequisite for projects with complex models like Ethena.
