What is Ethena? USDe, sUSDe & More

What is Ethena?

Ethena is a synthetic dollar protocol built on Ethereum, designed to create USDe, a stable, crypto-native currency. Using the yields from liquid-staked Ethereum and delta-hedging, USDe maintains its dollar peg without relying on traditional banks. With over $2.5 billion in Total Value Locked, Ethena provides stability in DeFi and allows USDe to seamlessly interact across the broader DeFi ecosystem.

Alongside USDe, Ethena introduces the 'Internet Bond' (sUSDe), a yield-generating asset that combines staking rewards from Ethereum and profits from derivatives markets. Users can stake USDe to receive sUSDe and earn returns as the bond’s value increases. 

Ethena’s delta-neutral hedging ensures USDe's value remains stable, even during market volatility. While risks like liquidity and custodial issues exist, Ethena mitigates them through a combination of onchain transparency and offchain liquidity management.

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How USDe Works

USDe is Ethena’s synthetic dollar, designed as a crypto-native alternative to traditional stablecoins like USDT and USDC. Here’s a breakdown of the key mechanics:

• Crypto Collateral: USDe is fully backed by crypto assets like Ethereum or Bitcoin. Users mint USDe by depositing these assets into Ethena’s system, ensuring a 1:1 collateralization ratio.
• Delta-Hedging for Stability: Ethena uses delta-hedging to keep USDe stable. This involves taking a short position in derivatives, offsetting any price changes in the collateral. The result is a stable USD value for USDe, regardless of market volatility.
• Minting Process: When users mint USDe, they lock in the value of their collateral through the delta hedge. Ethena issues USDe at a 1:1 ratio, ensuring it remains properly backed and stable.
• Censorship Resistance: Unlike traditional stablecoins that rely on banks, USDe’s collateral remains entirely within the crypto ecosystem. Everything is stored on-chain in auditable custody accounts, ensuring transparency and resistance to censorship.
• Liquidity Access: USDe taps into both decentralized and centralized liquidity pools, offering efficient scaling and flexibility. Its delta-hedging strategy allows USDe to scale without requiring excess collateral.
• Redemption: When redeeming USDe, the protocol burns the synthetic dollar and returns the user’s original collateral. Short positions are adjusted to maintain the balance.
• Yield with sUSDe: Users in approved regions can stake USDe to earn sUSDe, which accrues yield over time from staking rewards and derivatives market spreads.

In summary, USDe offers a stable, scalable, and censorship-resistant way to hold a crypto-backed dollar, making it a powerful tool across both centralized and decentralized finance.

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How Does sUSDe Earn Yield?

sUSDe earns yield from two main sources: staking rewards and funding spreads. Here’s how it works:

1. Staked Ethereum Rewards: When you stake USDe, some of the backing is placed in staked Ethereum (like stETH). The rewards from Ethereum’s proof-of-stake system flow back to sUSDe holders, slowly increasing the value of sUSDe over time.
2. Funding and Basis Spread: Ethena’s delta-hedging uses derivatives markets to hedge the collateral. Since these markets often have positive funding rates, Ethena earns payments on its short positions, which adds more yield to sUSDe holders.

The yield isn’t paid out directly. Instead, the value of sUSDe rises as the rewards get reinvested into the protocol. When you unstake, you get the original amount plus any yield accumulated during staking.

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Ethena (ENA) Tokenomics

Ethena’s ENA token has a total supply of 15 billion, with 1.425 billion initially in circulation. Here are how the ENA tokenomics are distributed:

• Core Contributors (30%): 30% of tokens are allocated to the team and advisors, with a 1-year lock followed by a 3-year monthly vesting period.
• Investors: Investor tokens follow the same vesting schedule as core contributors, ensuring alignment with the protocol's long-term goals.
• Foundation: This allocation supports USDe adoption, focusing on reducing reliance on fiat-backed stablecoins and funding key initiatives like audits and platform development.
• Ecosystem Development and Airdrops (30%): 30% is reserved for expanding the ecosystem, including airdrops and cross-chain partnerships. A DAO with multisig control manages these funds to ensure effective use.

The tokenomics are structured to balance rewarding contributors and ensuring a controlled token release, supporting ongoing growth and stability in the Ethena ecosystem.

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Ethena Airdrop

The Ethena Airdrop distributed 750 million ENA tokens, representing 5% of the total supply, as a reward for participation in the Shard Campaign, which ended on April 1st, 2024. Eligibility required users to maintain or increase their USDe holdings throughout the campaign.

High-balance wallet holders had 50% of their tokens vested over six months to encourage ongoing involvement. Additionally, 3% of the airdrop was allocated to NFT holders from the SchizoPosters and Redacted Remilio Babies collections, making up 0.15% of the total ENA supply, excluding core contributor allocations.

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Bottom Line

In summary, Ethena provides a fresh approach to DeFi with its crypto-backed synthetic dollar, USDe, designed for stability using delta-hedging. Paired with sUSDe, which generates yield through staking and derivatives, it offers a solid, scalable, and censorship-resistant alternative to traditional stablecoins.

With thoughtful tokenomics and sustainable incentives, Ethena is built for long-term growth, making it a top protocol for investors looking to earn yields on stablecoins in decentralized finance.