After a weekend, Bitcoin fell below $60,000 yesterday and continued to fall to $49,000 today, a 24-hour drop of 18.5%. Ethereum plummeted by 25% to below $2,100, and the crypto market fell across the board.

The market crash has made the already sluggish crypto market even worse, and the already sluggish DeFi sector has been hit hard. According to DeFiLlama data, Ethena Labs' revenue has been negative in the past month. If the annual revenue is calculated based on this (revenue in the past 30 days x 12), Ethena Labs' annual revenue is about negative $32.95 million.

The algorithmic stablecoin USDe launched by Ethena Labs currently relies on collateral BTC, stETH and its inherent income, while creating short positions in Bitcoin and ETH to balance Delta and use perpetual/futures funding rates to maintain anchoring and provide income. That is, using the income from spot to hedge the loss of one short order to achieve a balance, but you can harvest ETH pledge income and short order funding rates.

Bitcoin and Ethereum funding rates are both negative

For Ethena to succeed, demand for long leverage must remain high to keep funding rates high, as this is where the majority of the project’s revenue comes from. Otherwise, the protocol needs to pay fees to CEXs to maintain its contract positions.

That is to say, the USDe model can only work well when the market is in a bullish sentiment. The bull market in early 2024 drove high short fees, which supported the adoption of USDe in early 2024, but according to official data, the supply of USDe shrank slightly in April and then increased rapidly until the beginning of July, when the cryptocurrency market fell into a downward trend and the supply of USDe continued to decline.

Image source: Ethena Labs

Overseas KOL @OP Michael recorded the overall position fee status of Ethena on April 13 when market sentiment was extremely pessimistic. At that time, the comprehensive fee rate of ETH was -9% and the comprehensive fee rate of BTC was only 2%. Both the protocol and sUSDe holders began to face losses.

Due to the poor performance of Ethereum, in order to prevent the return from further decline, Ethena's pledged assets have gradually shifted to Bitcoin. Official data shows that the current TVL of the Ethena Labs platform is 3.18 billion US dollars, and the reserve funds are 46.5 million US dollars. 48% of the collateral is BTC, 30% is ETH, 10% is ETH LST, and 12% is USDT.

Image source: Ethena Labs

However, the market has rapidly corrected, and the market has plunged, driving a general decline in crypto assets, and the amount of long orders has increased. According to Coinglass data, the total amount of liquidation in the past 24 hours has reached 1.02 billion US dollars, of which long orders have been liquidated for 889 million US dollars and short orders have been liquidated for 130 million US dollars. The interest rate of short-selling funds continues to decline. According to the official website of Ethena Labs, the average fee rate of Bitcoin has dropped to -4.34%, while the average fee rate of Ethereum has reached -28.34%.

Image source: Ethena Labs

Although continuous negative rates throughout the year are usually extremely rare, the decline in Ethereum has led to the liquidation of staked Ethereum. According to PeckShield monitoring, several ETH whales have been liquidated today, and their value exceeds millions of dollars. As the situation changes, ENA has also ushered in a certain amount of selling pressure. According to CoinMarket data, ENA briefly touched $0.232, a 24-hour drop of 21%.

Dune data shows that USDe has been destroyed in the past month, which means that the collateral has been redeemed in large quantities. From the supply of sUSDe (USDe pledge certificate token), it can be seen that nearly 60 million US dollars of sUSDe have been released from pledge in the past week.

This also led to USDe's depegging to a certain extent. According to CoinMarket data, its price briefly touched $0.997 and was still depegging at the time of writing.

Ethena can’t run in the bear market?

During the bull market, the staking income and short funding rate achieved considerable returns for USDe. According to official data, Ethena's yield was quite amazing in March, with the protocol yield and sUSDe reaching a maximum of 113.34% and a minimum of 8.55%.

However, as the market continued to fall, the protocol yield briefly fell to -2.09% in mid-April, and then immediately rebounded, reaching highs of 22.77 and 77.58% respectively. But since June, the Ethena protocol yield and sUSDe yield have both fallen below 20%. (Due to the delay in the update of Ethena's official data, only data up to July 31 is included)

Image source: Ethena Labs

Objectively speaking, Ethena's stabilization mechanism is a major innovation of DeFi. Rune Christensen, founder of MakerDAO, once considered allocating 600 million DAI to USDe and pledging USDe (sUSDe) through the DeFi lending agreement Morpho Labs, but the plan was opposed by many parties.

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Ethena has made TVL exceed billions of dollars in a very short time, and the rapid growth has caused panic in the community. Opponents' views are nothing more than questioning the environmental risk of USDe and believing that its value is greatly affected by market conditions. Among them, analyst Duo Nine (@DU 09 BTC) once pointed out that it is only a matter of time before USDe depegs, and the bigger the bubble, the greater the probability of this happening.

Ethena was born at the last moment of the bull market, but the ensuing bear market continues to test Ethena's ability to withstand pressure. Now the funding rates of Bitcoin and Ethereum are negative, and the annual revenue of the protocol is also in a loss state. Whether Ethena can withstand the huge market correction and prove the availability of its mechanism still needs time to consider.