Looking ahead, in addition to the just-completed $14 million financing, there are several other key issues to be addressed regarding Ethena Labs.
On February 16th, stablecoin project Ethena Labs announced that it had completed a $14 million strategic round of financing, with Dragonfly, Brevan Howard Digital, and BitMEX founder Arthur Hayes’ family office Maelstrom leading the investment.
Last July, Ethena Labs also completed a $6.5 million seed round of financing, with Dragonfly leading the investment and participation from Deribit, Bybit, OKX, Gemini, Huobi, Arthur Hayes, and his family office.
Ethena Labs’ current main product is the “Delta Neutral” stablecoin USDe, which was inspired by BitMEX founder Arthur Hayes.
In March 2023, Arthur wrote an article titled “Dust on Crust” in which he discussed his concept of a new generation stablecoin called “Satoshi’s Dollar,” which would be backed by an equal amount of BTC spot longs and futures shorts.
Ethena Labs subsequently turned Arthur’s idea into reality, but chose ETH as the main underlying asset for spot and futures positions. In other words, the collateral assets for USDe are made up of equal amounts of spot ETH longs and futures ETH shorts.
Perhaps because Ethena Labs is advancing its vision in place of Arthur, the project has received strong support from Arthur in both previous rounds of financing. Arthur himself has minted a large amount of USDe and even publicly stated on the X platform, “USDe will surpass USDT to become the largest US dollar stablecoin.”
The biggest label for USDe is “Delta Neutral.”
The term “Delta” is a financial indicator used to measure the impact of underlying asset price changes on portfolio changes, with a value range of “-1 to 1.” The definition of “Delta Neutral” is that if a portfolio is composed of related financial products and its value is not affected by small price changes in the underlying asset, then the portfolio has the property of being “Delta Neutral.”
Considering the nature of USDe’s product, since the collateral assets for this stablecoin are made up of equal amounts of spot ETH longs and futures ETH shorts, the Delta value for spot positions is “1,” the Delta value for futures short positions is “-1,” and the Delta value after offsetting the two is “0,” thus achieving “Delta Neutrality.”
The fundamental nature of “Delta Neutrality” determines that the collateral positions for USDe are not significantly affected by small price changes in ETH, thereby ensuring (under normal circumstances) that USDe can maintain a stable collateral status.
The previous section introduced the collateral structure of USDe, so why did Ethena Labs choose such a complex design? And how can USDe capture market share from established stablecoins like USDT and USDC?
The answer lies in yield. USDe pledge users can share dual income from collateral assets.
First is stable income from spot long pledges. Ethena Labs supports the pledging of spot ETH through liquidity staking protocols like Lido, earning an annualized yield of 3% to 5%.
Second is unstable income from futures short funding rates. Users familiar with contracts understand the concept of funding rates. Although funding rates are an unstable factor, for top short positions, the majority of the time the funding rate is positive in the long run, which means that overall returns will be positive.
The combination of these two incomes provides substantial returns for USDe. Official data shows that Ethena Labs’ protocol yield and the yield of sUSDe (USDe pledge certificate tokens) have been impressive in the past two months. The protocol yield reached a peak of 58.9% and a low of 10.99%, while sUSDe reached a peak of 87.55% and a low of 17.43%.
Currently, the real-time yield of sUSDe is 27.6%. Just think about the frenzy caused by MakerDAO achieving an 8% yield using RWA. It is not difficult to understand why Arthur has such confidence in USDe.
In October last year, Austin Campbell, a professor at Columbia Business School and founder and managing partner of Zero Knowledge Consulting, wrote an article dissecting the design structure of USDe.
In the article, Austin pointed out that he would rather refer to USDe as a “structured note” rather than a stablecoin, and analyzed the four potential risks of USDe:
First is the security risk of the collateral aspect, whether the security and sustainability of the collateral nodes can be guaranteed.
Second is the security risk of the futures contract platform. Both DEX and CEX are exposed to hacking risks.
Third is the availability risk of the contract. Sometimes there may not be enough liquidity for shorting.
Fourth is the funding rate risk. Although the funding rate for top short positions is mostly positive, there is also the possibility of it turning negative. If the comprehensive yield after weighted collateral returns is negative, it can be quite fatal for a “stablecoin.”
Currently, the real-time total issuance amount of USDe is $234 million, and it has maintained strong growth in the past few months.
It is worth mentioning that Ethena Labs has not publicly released its product, and access to USDe’s product is currently by invitation only. Therefore, achieving this data performance is quite rare.
Looking ahead, in addition to the just-completed $14 million financing, there are several other key issues to be addressed regarding Ethena Labs. One is the public release of the product and the disclosure of the related token economic model. Second, Seraphim, the former “face” and expansion software lead of Lido, has joined Ethena Labs as the Head of Growth, which may help drive the product integration of Ethena Labs. Third, Binance Labs has included Ethena Labs in the first batch of incubation projects for Incubation Season 6, which may also provide significant support for Ethena Labs’ accelerated growth.
The challengers in the stablecoin race have come and gone, and hopefully this time, Ethena Labs and USDe will bring a different story.