The quality of new coin mining projects launched by Binance in recent periods has improved significantly. For example, AEVO, ETHFI, and Ethena, etc., both the mining income and the subsequent performance of the tokens after they are launched are still quite impressive.
Take the algorithmic stablecoin Ethena (ENA) which was launched on April 2. After its launch, its price has increased by 120% from its low to now.
What exactly is the innovation of Ethena?
1. Ethena’s Innovation
The inspiration for the Ethena project came from the article Dust on Crust published last year by Arthur Hayes, the founder of BitMEX.
The article mentioned his idea for a new generation of stablecoins, which is to create a stablecoin backed by equal amounts of BTC spot longs and futures shorts.
Ethena Labs turned Arthur’s idea into reality, but did not use BTC as the main underlying asset for opening positions, but chose ETH.
That is, Ethena is a synthetic dollar protocol built on Ethereum. It has launched a US dollar stablecoin USDe, with ENA as its platform token.
USDe is actually an algorithmic stablecoin. Different from the minting mechanism of USDT and USDC, the stablecoin USDe minted through the Ethena protocol has ETH as its underlying asset instead of the US dollar.
Specifically, the collateral assets of USDe are composed of equal amounts of spot ETH longs and futures ETH shorts, so that hedging can be achieved, which is what we often hear about hedging.
Therefore, regardless of whether the price of ETH rises or falls, USDe can remain "stable". In professional terms, this means achieving "Delta neutrality".
Moreover, these ETH assets are not stored in centralized exchanges, but are hosted on platforms such as Copper, CEFFU, and Cobo. This can avoid risks such as exchange running away or misappropriation to a certain extent.
2. Source of Income
The competition in the stablecoin market is very fierce. Facing established stablecoins such as USDT, USDC, and DAI, how can USDe gain more market share?
The biggest highlight of USDe is its rate of return. USDe staking users can share double income from the pledged assets.
First of all, 2024 is the year of staking, and there are more and more projects in the staking and re-staking tracks. The underlying assets of USDe (such as ETH, etc.) can at least obtain relatively stable staking income through these staking platforms. For example, ETH can be pledged on platforms such as Lido to obtain an annualized return of about 4%, which can guarantee a basic stable income.
Secondly, you can get a certain funding rate on these futures platforms. Although the funding rate is an unstable factor, for short positions, the funding rate is positive most of the time in the long run, which also means that the overall return will be positive.
Let’s take a look at Ethena’s specific APY (annualized yield).
According to statistics from the defillama platform, Ethena's Median APY is as low as 5% and as high as 55%, which is much higher than the yields offered by other DeFi platforms.
3. Financing
Ethena has raised a total of US$20.5 million through two rounds of financing. The most recent round of financing took place on February 16 this year, completing US$14 million in financing at a valuation of US$300 million.
Ethena's investment team is very luxurious, including Binance Labs, OKX Ventures, Dragonfly, etc. Among them, OKX Ventures and Dragonfly participated in both rounds of financing.
We also see traditional financial giants such as Paypal and Franklin in the Ethena investment team.
In addition, the founders of multiple CEX platforms and derivatives trading platforms also participated in the investment in Ethena.
IV. TVL and Revenue
According to statistics from the defillama platform, Ethena TVL has grown very rapidly. At the beginning of this year, it was only more than 8,600 US dollars, and now it has reached 1.857 billion US dollars. In 3 months, TVL has increased by 21 times. The APY provided by the Ethena platform, which is much higher than other platforms, has contributed greatly to this.
At present, the minting volume of USDe has exceeded 1.9 billion.
According to data from the Defillama platform, the average monthly revenue of the Ethena platform can reach more than 18 million US dollars, and the average daily revenue can reach more than 230,000 US dollars. Compared with the profitability of other DeFi platforms, the profitability of the Ethena platform can be said to be quite strong. Of course, whether this high return can be sustained remains to be seen.
5. Risks
The risks faced by Ethena mainly come from:
1. Risks of the pledge platform
Placing USDe's underlying assets on a staking platform to earn returns will of course involve some risks, such as the staking platform being hacked, etc. Of course, this is not just a risk that USDe has to face.
2. Risks of futures contract platforms
For example, the platform does evil or is attacked by hackers.
3. Funding rate risk
Although the funding rate for short positions is positive most of the time, there is also the possibility of it turning negative. If the comprehensive yield after weighted staking income is negative, it will have a greater impact on "stablecoins".
In short, although algorithmic stablecoins are not original to Ethena, Ethena has many innovations compared to Luna. For example, Ethena uses the hedging model of holding spot ETH longs and futures ETH shorts to achieve the stability of USDe value.
At present, the market share of stablecoins has exceeded 150 billion US dollars and is still growing. Among them, USDT has exceeded 100 billion US dollars, while Ethena's USDe is currently less than 2 billion US dollars, which is more than 50 times the gap from USDT.
In addition, if the issuance of USDT is decided by the project party, then the issuance of USDe is decided by the users. The final scale of USDe will be determined by the users. If Ethena can continue to provide high returns, it will attract more users to mint. If this model can continue, the scale of USDe is likely to exceed our imagination. As the scale of USDe grows and the platform continues to run smoothly, USDe will have more and more application scenarios, and will be embedded in more DeFi applications, and may even become a basic stablecoin.
As the token of the Ethena platform, ENA will capture the value brought by the development of the Ethena platform. As USDe becomes larger and larger and its usage scenarios become more and more abundant, the price of ENA will naturally rise. At present, the market value of ENA has exceeded 1 billion US dollars. If compared with the market value of LUNA of tens of billions of US dollars, ENA still has a lot of room for development in the future. Of course, whether Ethena's innovative model can continue, we still need to wait for the verification of time, so we will wait and see.