DeFi protocol Ethena has been in the news lately as it decided to invest $46 million of its Reserve Fund into a set of diverse tokenized real-world assets. This came with an announcement made on October 10, constituting a serious step in the implementation of Ethenaâs plans aimed at bridging traditional finance with blockchain-based systems.
Depending on market conditions, the allocation will be widely spread across four major assets: the tokenized fund from BlackRock, BlackRock USD Institutional Digital Liquidity; yield-bearing stablecoin from Mountain Protocol; the Superstate Short Duration U.S. Government Securities Fund; and USDS, a new stablecoin that Sky has just introduced to the market.
Ethena invests heavily in tokenized real-world assets (RWAs)
The decision by Ethena to invest heavily in RWAs reflects an increasing trend for DeFi protocols seeking to bring traditional finance into the blockchain space. Tokenized RWAs are digital versions of physical assets, ranging from real estate to government bonds, and offer the prospect of stability added with yield in such a very turbulent crypto market.
Ethena said Web3 assets were chosen based on a number of signals: maturity in the market, size of AUM or TVL, liquidity, redemption time, and legal structure, among others. These qualities mean Ethenaâs portfolio is balanced with both secure and high-performing assets. In this respect, Ethenaâs Reserve Fund will diversify into four main tokenized assets, all providing stability and returns to optimize its portfolio.
The lionâs share, 40%, or roughly $18 million, will be invested into BlackRockâs USD Institutional Digital Liquidity fund and will be among the first major support to the newly tokenized fund from one of the most well-known asset management companies in the world. The participation by BlackRock highlights a deepening relationship between traditional finance and DeFi.
The newly launched stablecoin by Sky, USDS, will receive 29% of the Reserve Fund, about $13 million. USDS is designed in a way to provide liquidity and stability, a very crucial and integral component of DeFi systems. A class of digital currencies known as stablecoins are pegged against stable assets to provide an investor-safe avenue in highly volatile DeFi markets.
Ethenaâs Risk Committee Selects Assets from 25 Issuers
The rest of the money is to be divided between two other key assets: Mountain Protocolâs yield-bearing stablecoin gets 16.5% and will be assigned to Superstateâs Short Duration U.S. Government Securities Fund, which invests in tokenized U.S. government debt, providing the investor with low-risk returns via its strategy of investing in short-maturity government securities that ensure an investment that is both stable and secure.
Helping to spearhead that selection process has been Ethenaâs five-member risk committee, comprised of voting rights from instituted names like Gauntlet, Block Analitica, Steakhouse, Llama Risk, and Blockworks Advisory. According to Ethena, this committee dutifully voted on proposals from 25 different issuers to cut down a pool to four assets.
This, therefore, was a very rigid selection process in that the assets chosen formed those that conformed to the long-term objectives of Ethena through ensuring a balance between safety and yield, and liquidity. Further, the committee shall monitor the performance of the selected assets and report back to the community of Ethena on a regular basis.
In July, Ethena announced that it will be creating a real-world asset-backed reserve fund, pivoting from digital-native assets such as cryptocurrencies to tokenized real-world assets in an attempt to add more stability while still using the powers of decentralized technologies for transparency in access and the handling of more traditional financial products within the DeFi ecosystem.
Conclusion
Ethenaâs $46 million in real-world assets forms a critical turn for the course of decentralized finance in pursuit of stability and a bridge between traditional and blockchain-based finance. A handpicked selection of tokenized assets will place Ethena in offering security while promising growth potential. This is part of the general trend in DeFi: to build resilient financial ecosystems that are more open.
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