Introduction to Ethena(ENA)

Ethena is a synthetic dollar protocol on Ethereum that enables a stable, scalable crypto-native currency USDe that is not dependent on the traditional banking system. The protocol uses collateralized Ethereum for delta hedging, ensuring the stability of USDe and its composability in DeFi. The protocol also introduces “internet bonds,” leveraging Ethereum, on-chain custody and centralized liquidity venues. By hedging the delta value of the spot assets backing the token during minting, USDe is able to provide scalability, stability, and censorship resistance, enabling capital efficiency scaling by leveraging derivatives. In addition, USDe is backed by collateral from a decoupled banking system and trusted assets stored on-chain, providing a fully custodial and stable stablecoin with benefits inherent in the embedded protocol system, providing users in compliant jurisdictions with A unique dollar-denominated savings instrument.

This move marks a significant advancement in the crypto-finance space, enabling censorship-resistant transactions and a novel savings mechanism. By leveraging on-chain transparency and liquid staking derivatives, Ethena not only improves the utility and efficiency of digital currencies, but also promotes the evolution of Ethereum into a stable currency asset, thereby driving broader adoption and capital inflows into the crypto ecosystem.

How does USDe work on Ethena?

USDe maintains the stability of its peg to the U.S. dollar through a complex delta hedging mechanism that uses Ethereum as collateral. Here is a technical overview of how it works:

• Delta hedging mechanism: The value of USDe is stabilized through real-time, programmed delta-neutral hedging. This involves taking an opposite position in the derivatives market equal to the Ethereum collateral, ensuring that the value of the synthetic USD remains stable regardless of market fluctuations.

• Issuance and Redemption Process: Users can mint USDe by depositing collateralized Ethereum (stETH) and can redeem it, maintaining its peg to the U.S. dollar closely by adjusting the supply. This process is provided directly through Ethena Labs for parties that pass KYC/KYB checks, making interactions controlled and compliant.

• Revenue Mechanism: The protocol generates revenue for USDe holders by leveraging rewards for staking Ethereum as well as financing and basis spreads on their hedging positions. Proceeds from this dual source are contributed to the “Internet Bond”, providing a dollar-denominated savings instrument.

• Risk Mitigation and Transparency: Ethena Labs addresses operational, market and smart contract risks through diverse hedging strategies and multi-custodial solutions. It ensures transparency by providing on-chain evidence of collateralized assets and hedged positions.

This structure enables USDe to provide a stable, scalable and censorship-resistant currency that leverages the Ethereum network and DeFi ecosystem to provide an innovative financial tool for the crypto space.

How does Ethena generate revenue for USDe?

The income of eUSD comes from two main channels, both of which are designed to ensure the sustainability of income and the diversity of risk management:

• Staking Ethereum Rewards: The income comes from Ethereum's proof-of-stake model, including inflation rewards at the consensus layer, execution layer fees, and MEV capture. These rewards are paid and denominated in ETH, and the percentage of income is affected by network activity and the amount of staked Ethereum.

• Financing and Basis Spread: From the Delta Hedged Derivatives position established by Ethena Labs when minting USDe. Positive funding rates and basis spreads result from an imbalance in demand for exposure to digital assets, providing additional yield to those who short such exposure. The rate of this return changes annually based on market conditions.

By staking USDe into sUSDe, users participate in this revenue mechanism. The "Token Vault" model ensures that pledged USDe directly generates income without being re-pledged. As a result, the value of sUSDe will increase over time, reflecting the protocol's accumulated earnings.

This model ensures that users benefit from the inherent yield generation of their staked assets, and as the protocol continues to deposit yields into the staking contract, the value of sUSDe grows relative to USDe.

Ethena announces 750 million ENA airdrop

750 million ENA, 5% of the total supply, will be distributed based on each user’s activity in the protocol. This will be determined by the number of shards each user has received over the past 6 weeks of sharding activity.

Small holders will receive their ENA airdrop without locking, while the 2,000 largest wallets holding ENA will only receive half of their allocation on the day of the airdrop. The other half will be distributed over a 6-month lock-up period, provided the user holds at least the same amount of synthetic USDE in Ethena as at the time of the airdrop snapshot.

Ethena token situation

The total supply of ENA is 150,000,000,000 as of March 29, 2024, and the initial circulating supply at launch will be 1,425,000,000 (approximately 9.5% of the total token supply)

Project view

Ethena is at the forefront of crypto-financial innovation with its USDe protocol, redefining the functionality of stablecoins on the Ethereum blockchain. Through strategic delta hedging and groundbreaking "internet bonds," Ethena provides a stable, scalable currency and a unique savings mechanism that is free from the constraints of traditional banks. As the protocol develops, especially with the expected unveiling of its token economy and participation-driven Shard Campaign, Ethena aims to enhance the growth and stability of its ecosystem.

ETHENA Price Prediction

According to Launchpad’s yield rate of about 3%, I estimate the opening price to be around 0.4U.


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