• Tokenized hedge fund Ethena attracts over $2 billion with a 37% yield.

  • Skepticism arises about the sustainability of Ethena’s high yields amid market buzz.

  • Ethena is one of the most profitable crypto ventures, recording revenue of over $25 million in March.

Ethena, a crypto project mirroring a common hedge-fund trade, has captured the attention of investors, drawing billions in investments and generating significant buzz in the market. However, skepticism is brewing about the sustainability of its current yields, which stand at approximately 37%.

Notably, Ethena is pushing this move via the stablecoin USDe, a synthetic dollar, employing a crypto iteration of the basis trade. This method exploits price differentials between spot and futures markets, akin to a cash-and-carry trade in the crypto realm. This approach has been notably lucrative recently, propelled by soaring token prices and escalating funding rates—the interest paid by bullish traders to maintain futures positions.

Meanwhile, Ethena’s elevated yields have evoked memories of the eye-catching rates offered through Terra Luna’s UST, which ultimately failed miserably, causing investors to suffer staggering losses.

It is worth noting that Ethena diverges significantly from Terra’s design and may not present comparable systemic risks. Yet, it has continued to attract criticism from industry pundits about its sustainability during a bear market.

In a recent podcast, Robert Leshner, partner at fintech venture fund Robot Ventures, remarked that Ethena’s worst-case scenario would be if the hedge fund fails to perform in line with the implied funding rate across these various crypto exchanges.

Notably, Ethena operates on a principle where traders generate USDe tokens through an automated process by depositing stETH, a derivative of Ether. Ethena Labs then initiates short positions via Ether futures and perpetual swaps, which are crypto futures contracts that do not have expiration dates. 

These short positions enable holders of USDe to capitalize on exceptionally high funding rates, which have soared to over 100% on an annualized basis during this year’s bull market.

Notably, Ethena is not the pioneer in mimicking basis trades; other projects, such as USDL from Lemma Finance, pursue similar strategies. However, Ethena has experienced rapid growth since its inception last year. 

According to DefiLlama, over $2 billion worth of cryptocurrencies have been deposited into the project. Ethena has emerged as one of the most profitable crypto ventures, recording revenue exceeding $25 million in March, as reported by Token Terminal.

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