Amid the burgeoning world of decentralized finance (DeFi), Ethena, a newly launched platform, has quickly captured attention and investment, boasting an enticing annualized yield of 27% for holders of its USDe stablecoins.
The platform, which had been in beta testing among a limited group, recently opened its doors to the public, leading to a surge in inflows, with over $287 million of USDe minted as of Tuesday morning, $50 million of which poured in after its public launch.
Ethena’s unconventional yield model
Ethena’s allure lies in its unconventional method of generating yield, primarily by shorting ether futures. This approach, while novel, has sparked both intrigue and skepticism within the crypto community.
The platform leverages a combination of staking ether to a validator, yielding 5% on the capital, and shorting ether futures to capture the funding rate, which historical modeling suggests could exceed 20%. The latter mechanism operates akin to a “cash and carry” trade, exploiting funding payouts rather than relying on asset price movements.
Risk and criticisms
While Ethena’s high-yield offering has attracted significant attention, it has not been immune to criticism and skepticism. Some within the crypto community have expressed concerns regarding the sustainability of its model, citing past failures of similar projects.
Additionally, questions linger around the management of associated risks, with experts highlighting potential challenges, particularly in risk management.
Addressing concerns
In response to these apprehensions, Conor Ryder, Ethena’s head of research, has sought to assuage doubts, asserting that the platform’s parameters were set based on historical testing, mitigating far-fetched risks.
Ryder emphasized that the current demand for leveraged long positions on ether contributes to high futures rates for shorting the cryptocurrency.
He framed negative funding rates as a feature rather than a flaw, suggesting that Ethena was purpose-built with such dynamics in mind.
