• News
    • Bitcoin
    • Altcoins
    • Blockchain
    • DeFi
    • Regulation
    • Scams
  • NFT
  • Metaverse
  • Analysis
  • Learn
  • Videos
  • Blogs
  • Market Cap
  • Shop
What's Hot

Bitcoin Just Broke Out – Is the Bull Run BACK?!

2025-05-10

What is Proof-of-Authority (POA) Consensus in Blockchain?

2025-05-09

What Is Proof-of-Stake (PoS)? Guide to Blockchain Consensus for Beginners

2025-05-09

Subscribe to Updates

Get the latest creative news from FooBar about art, design and business.

Facebook Twitter Instagram
Crypto Investor News Network
  • News
    • Bitcoin
    • Altcoins
    • Blockchain
    • DeFi
    • Regulation
    • Scams
  • NFT

    All Eyes on Art: Upcoming Collections to Watch the Week of February 4

    2025-02-05

    Creator of rabbit AI assistant has hidden NFT past

    2024-05-02

    Ethereum tops daily NFT sales at US$7 mln, ends weakest month of 2024

    2024-05-02

    Top NFT Airdrops and Giveaways for May 2024

    2024-05-02

    Casio Launches NFT Collection Celebrating 50th Anniversary

    2024-05-01
  • Metaverse

    Shib: The Metaverse – Part of the Expanding Shiba Inu Ecosystem

    2025-01-03

    Experience to Earn: Everdome’s Metaverse Frontier

    2024-12-30

    Beyond Bots: Meta Motivo and the Dawn of Humanlike Digital Life

    2024-12-13

    Exploring NetVRk: What Is Behind This AI-Driven Virtual Universe?

    2024-10-28

    Council of Europe Highlights Metaverse’s Impact on Privacy and Democracy

    2024-09-05
  • Analysis

    Crypto Exchange Coinbase Lists New DeFi Altcoin Project Built on Base Blockchain

    2023-12-13

    Ethereum Price Bears Keep Pushing, Why Decline Isn’t Over Yet

    2023-12-13

    Trader Bullish on Cosmos (ATOM), Says One Dogecoin Rival Setting Up for Next Leg Up – Here’s His Outlook

    2023-12-13

    AVAX Price Pumps 50% and Dumps 15%, Why Uptrend Is Still Strong

    2023-12-13

    Top Trader Predicts Parabolic Rally for Solana Competitor – Here’s His Upside Target

    2023-12-13
  • Learn

    What is Proof-of-Authority (POA) Consensus in Blockchain?

    2025-05-09

    What Is Proof-of-Stake (PoS)? Guide to Blockchain Consensus for Beginners

    2025-05-09

    What is a Layer-1 (L1) Blockchain? L1 Problems & Future

    2025-05-03

    What is a Layer-2 (L2) Blockchain Solution? Types & Problems They Solve

    2025-05-02

    What Is a Layer-0 Blockchain Protocol?

    2025-05-02
  • Videos

    Bitcoin Just Broke Out – Is the Bull Run BACK?!

    2025-05-10

    WHY Tesla’s Lead is UNTOUCHABLE! 🚀📊 + Price Predictions!

    2025-05-08

    BUY BITCOIN NOW…The Reason Might Surprise You

    2025-05-07

    Bitcoin Surges as U.S. & China Flood Markets with Liquidity

    2025-05-07

    Bitcoin Won’t Be Fine, Bitcoin Will Be Fine

    2025-05-07
  • Blogs
  • Market Cap
  • Shop
Facebook Twitter Instagram TikTok
Crypto Investor News Network
Home»DeFi»Ethena offers 27% on stablecoins but where is the yield coming from?
DeFi

Ethena offers 27% on stablecoins but where is the yield coming from?

2024-02-21No Comments4 Mins Read
Facebook Twitter Pinterest LinkedIn Tumblr Email
Share
Facebook Twitter LinkedIn Pinterest Email

The launch of so-called ‘synthetic dollar’ Ethena (USDe) took place on Monday, alongside a heavily-shilled points programme, labelled as a ‘Shard Campaign.’

So far, over $300 million has been deposited into Ethena, which promises an internet bond with a ‘real yield’ of 27% for users who stake USDe.

However, many are sceptical of the project’s sustainability, accusing Ethena of shortsightedness with respect to the source of the yield.

After all, this isn’t the first time a stable source of high-yields has been marketed to the masses.

The stablecoin (or ‘synthetic dollar‘) is backed by a delta-neutral position that balances a basket of staked ETH derivatives with ETH shorts on centralized exchanges (CEX).

The high yields that have been promised are achieved by adding together the native staking yield (around 5%) and the funding rates paid to shorts, which is currently high (over 20%) due to bullish overall market sentiment.

The trade is a common hedge that any user could set up manually. Ethena has packaged this trade along with a points programme to generate hype and is aiming to market itself to retail.

Although previous projects based on a similar trade failed to scale, Ethena’s head of growth is banking on using CEX liquidity rather than decentralized exchanges which are less popular.

Funding rate risk

In the case of a decrease in the relative demand for ETH long liquidity, the funding rate component falls, eating into Ethena’s high yield and potentially even threatening the USDe peg.

Ethena’s head of research, Conor Ryder, is keen to point out that data from the last three years shows negative funding rates on just 20% of days, with just 11% of negative days eclipsing the ETH staking yield. Furthermore, Ryder states that these periods rarely last long and act as an incentive for users to redeem USDe, even going as far as to say, “negative funding rates are a feature, rather than a bug of the system.”

See also  Defi sector rallies as interest rates to borrow stablecoins surge

However, studying historical data doesn’t take into account Ethena’s hundreds of millions of dollars worth of ETH shorts. Capitalizing on the funding rate arbitrage at such scale is expected to close the gap, driving down yields.

A $10 million insurance fund is in place to offset any periods of negative funding rates, although this also has its detractors who claim it would only serve to delay the inevitable.

Ethena investor and high-profile crypto pundit Cobie would instead prefer to see yields go negative as an incentive for users to redeem collateral and unwind the underlying positions.

In any case, a prolonged funding rate reversal should not result in a dramatic implosion, but instead a slow bleed-out as USDe depegs.

Other risks

Aside from funding rate risk, several other situations could cause problems for the stability of Ethena’s system.

The liquid staking derivative tokens that provide native proof of stake (PoS) yields are subject to a range of risks, including slashing, de-pegging, and hacks, any of which could see USDe’s backing falter.

Ethereum’s largest staking service finally regains stETH peg

Read more: Ethereum centralization is becoming a serious problem

The implosion of FTX shows how users can still lose everything on CEXs, despite them often being seen as a safe haven when compared to the Wild West of decentralized finance (DeFi). The fallout also showed how centralized platforms are able to cook their books while playing by their own rules.

The collateral for the ETH short positions won’t be held on the exchanges themselves, presumably to make the system more palatable for jaded traders. Instead, funds will be isolated from potential exchange blowups and will be entrusted to off-exchange custodial service providers such as Fireblocks and Copper. However, the use of crypto custodians is not without its own risk, as Celsius found out.

See also  Synthetix Releases Andromeda: A Transformative Upgrade Awaits

The next Luna?

Despite the difference in risk profile, many will be experiencing flashbacks to May 2022’s collapse of LUNA and the accompanying UST stablecoin, another widely-touted ‘stable’ source of high yields.

Ethena’s addition of a referral link-boosted points (or ‘Shards’) programmes has proven to be a TVL magnet in recent months, as crypto influencers ensure their followers help them achieve a high score in the hopes of receiving a hefty airdrop.

Here’s how crypto’s third largest stablecoin Terra (UST) collapsed

Read more: FTX customers to be repaid at $16,871 bitcoin prices

The inevitable looping of leverage as DeFi lenders spin up staked-USDe collateral pools is also likely to accelerate any future unwinding of USDe, as would any future extension of collateral to include re-staked ETH.

In the meantime, though, Ethena plans to wait for USDe to hit an equilibrium supply level before launching BTC collateral.

coming Ethena offers Stablecoins Yield
Share. Facebook Twitter Pinterest LinkedIn Tumblr Email

Related Posts

🧨 More Bitcoin Gains Coming? 💎 All Signals Green! ✅

2025-05-01

Bitcoin Investors…Prepare For What’s Coming Next

2025-04-24

CRYPTO PUMP TIME IS COMING SOON!!

2025-04-15

CRYPTO PUMP TIME IS COMING SOON!!

2025-04-15
Add A Comment

Leave A Reply Cancel Reply

Top Posts
DeFi

Cryptodollar Minting Protocol M^0 Will Allow Institutions to Issue Stablecoins Backed by U.S. Treasuries

2024-02-08

M^0 white paper has set rules to allow crypto institutions to mint and issue fully…

DeFi

BaFin-Licensed Crypto Custodian Finoa Will Offer Regulated DeFi

2023-09-12

Berlin-based cryptocurrency custody firm Finoa is extending its range of brokerage and crypto staking services…

NFT

‘The Rocky Horror Show’ Marks 50 Years With TimeWarp NFT Launch

2023-06-15

Online Blockchain plc, a blockchain research and development company, has announced its upcoming NFT collection inspired…

Subscribe to Updates

Get the latest news and Update from CINN about Crypto, Metaverse and NFT.

Editors Picks

Bitcoin Just Broke Out – Is the Bull Run BACK?!

2025-05-10

What is Proof-of-Authority (POA) Consensus in Blockchain?

2025-05-09

What Is Proof-of-Stake (PoS)? Guide to Blockchain Consensus for Beginners

2025-05-09

WHY Tesla’s Lead is UNTOUCHABLE! 🚀📊 + Price Predictions!

2025-05-08
Crypto Investor News Network
Facebook Twitter Instagram TikTok
  • Contact
  • Terms & Conditions
  • Privacy Policy
  • DMCA
  • Disclouser
© 2025 - All rights are reserved.

Type above and press Enter to search. Press Esc to cancel.

bitcoin
Bitcoin (BTC) $ 104,499.00
ethereum
Ethereum (ETH) $ 2,573.48
tether
Tether (USDT) $ 1.00
xrp
XRP (XRP) $ 2.43
bnb
BNB (BNB) $ 667.80
solana
Solana (SOL) $ 176.28
usd-coin
USDC (USDC) $ 1.00
dogecoin
Dogecoin (DOGE) $ 0.247992
cardano
Cardano (ADA) $ 0.831902
tron
TRON (TRX) $ 0.267793
bitcoin
Bitcoin (BTC) $ 104,499.00
ethereum
Ethereum (ETH) $ 2,573.48
tether
Tether (USDT) $ 1.00
xrp
XRP (XRP) $ 2.43
bnb
BNB (BNB) $ 667.80
solana
Solana (SOL) $ 176.28
usd-coin
USDC (USDC) $ 1.00
dogecoin
Dogecoin (DOGE) $ 0.247992
cardano
Cardano (ADA) $ 0.831902
tron
TRON (TRX) $ 0.267793