27% APY on a stablecoin - how sustainable is Ethena?
My first thread in a long time.
What is it?
Ethena is a synthetic dollar protocol built on Ethereum that will provide a crypto-native solution for money not reliant on traditional banking.
Ethena's synthetic dollar, USDe, will provide the first censorship-resistant, scalable, and stable crypto-native solution for money achieved by delta-hedging staked Ethereum collateral.
The 'Internet Bond' will combine yield derived from staked Ethereum as well as the funding & basis spread from perpetual and futures' markets.
Why are stablecoins so important?
All major trading pairs across spot and futures markets in centralized and decentralized venues are denominated in stablecoin pairs with >90% of orderbook trades and >70% of onchain settlements being stablecoin denominated.
Stablecoins settled >$12 trillion onchain this year, constitute 2 out of the 5 of the largest assets in the space, >40% of TVL in DeFi, and are by far the most utilized assets across decentralized money markets.
AllianceBernstein, a global asset management firm with $725B AUM, predicts that the stablecoin market cap will reach $3T by 2028.
If we examine today's market, the stablecoin market cap is currently at $138B, peaking at $187B. That's a 2000% potential increase!
USDe is aiming to meet this demand by being censorship-resistant, scalable, and stable (hopefully).
How does it work?
1) A user deposits let's say 1 ETH = $3,000 in stETH and receives ~$3,000 USDe atomically in return
2) Ethena opens a corresponding short perpetual position for the approximate same dollar value on a derivatives exchange.
3) The assets received are transferred to an "Off Exchange Settlement" provider. Backing assets remain onchain and off-exchange servers to minimize counterparty risk.
Ethena generates two sustainable sources of yield from the deposited assets.
The returned yield to eligible users is derived from:
Staking Ethereum to receive consensus and execution layer rewards (3,5% APR)
The funding and basis spread from the delta hedging derivatives positions. (0-20% APR). Note this is variable and might also be negative (more about this later).
This will keep me accountable and force me to think through my investments even more purposefully, plus should be interesting for us to look back on as 2023 progresses to see how smooth-brained vs giga-brained I am :)
A lot has changed for the Fantom Opera network and the ecosystem built on top of it since the parabolic run in 2021.
Let's take a look at what they have built in the bear market, the current narratives, and all the opportunities in the $FTM ecosystem going forward.
Thread👇
Long-term followers of my content may remember that I’ve written threads about $FTM in both 2021 & 2022, but since then, there have been some major upgrades in the works
If you want to look at my earlier Fantom threads, you can find them here:
Fantom captured the attention of many DeFi degens in 21', and it was among my favorite chains due to how easy, cheap, fast, and stable it was to use.
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