What is Ethena? Why is Arthur Hayes Bullish

Ethena’s native token, ENA, has seen a significant price spike, increasing by 22.5% in just 24 hours, reaching a peak of US$0.7588 (Rp11,993). Although the price slightly corrected to US$0.7213 (Rp11,394), it still posted a 14.13% daily increase, signaling a bullish trend.

The price surge has been accompanied by increased market activity. CoinGlass data reveals that ENA’s open interest rose 23% to $374 million (Rp5.91 trillion), reflecting growing investor interest. Furthermore, ENA’s total liquidation reached $1.29 million (Rp20.4 billion), with $956,000 (Rp15.1 billion) coming from short positions, indicating a shift in market sentiment towards bullish.

The Ethena Labs protocol introduces a groundbreaking approach to stablecoins, leveraging Ethereum-based solutions to address the inherent limitations of traditional crypto-native money. Here’s a detailed overview, combining insights from Ethena’s documentation and Route 2 FI’s analysis.

Ethena Labs is a synthetic dollar protocol built on Ethereum that offers a censorship-resistant, scalable, and stable crypto-native monetary system. Its core product, USDe, is a delta-neutral stablecoin created through advanced derivatives strategies.

• Delta-neutral stability: Achieved by hedging Ethereum collateral using derivatives.

Investors often gravitate towards these areas:

• Yield generation: Combines staking yields from ETH with funding and basis spreads in derivatives markets.

• Censorship resistance: Provides a stable financial solution independent of centralized entities.

Stablecoins are the backbone of the crypto ecosystem:

• Over 90% of orderbook trades and 70% of on-chain settlements are denominated in stablecoins.

• They facilitate smooth transactions across both centralized and decentralized platforms.

1. Deposit Collateral:

• A user deposits staked Ethereum (e.g., 1 ETH = $3,000) as collateral and receives approximately $3,000 worth of USDe in return.

2. Hedging with Perpetuals:

• Ethena simultaneously opens a short perpetual position equivalent to the deposited collateral’s dollar value. This ensures the price stability of USDe.

3. Yield Generation:

• The protocol earns yield through:

• Staking rewards from ETH.

• Funding and basis spreads in derivatives markets, derived from the mismatch between demand and supply for leverage in crypto markets.

Ethena offers an impressive 27% APY, combining ETH staking yields and derivatives market spreads. However, sustainability depends on:

• Market conditions: A prolonged period of negative funding rates could impact returns.

• Collateral efficiency: Effective delta-neutral strategies are crucial to maintaining stable returns.

Ethena’s unique approach to stablecoins offers several advantages:

1. Decentralization: By relying on Ethereum-based derivatives and staking mechanisms, Ethena minimizes dependence on centralized entities.

2. Innovation: The “Internet Bond” concept combines yield from multiple sources, representing a new frontier in decentralized finance (DeFi).

3. Stability: Delta-neutral strategies ensure that USDe maintains its peg, providing users with a reliable store of value.

Ethena Labs is at the forefront of the next generation of stablecoins, combining stability, scalability, and yield generation. While questions about sustainability remain, its innovative use of delta-neutral hedging and Ethereum staking sets it apart as a promising solution for the crypto economy.