Paranoia or just PTSD from Luna? 🌜
Ethena, one of the latest stablecoin protocols in the DeFi space, recently announced a $14M strategic funding round, as well as the public launch of their platform.
Many were caught off-guard by their seemingly high yields of over 27% for just staking their native stablecoin, USDe, which is more than double the current stablecoin interest rates on Aave, which are currently around 8-10%.
Some have even compared it to the Anchor savings yield for the Luna ecosystem's infamous stablecoin, USTC, which promised close to 20% APY.
The founder of Ethena, Guy Young, also known as Leptokurtic on X, gave a detailed breakdown of where the yields come from.
As broken down by Young in his recent tweet thread, Ethena's yield comes from a combination of yields from the underlying liquid staking tokens which back the stablecoin as well as the funding rates generated from shorting ETH.
While the current staking yield of ETH has fallen to about 3%, funding rates on CEXs are currently hovering around 17%.
Besides that, Young also pointed out that since yield is generated from USDe's entire collateral backing, the yield seems much higher it is only distributed to staked USDe (sUSDe) holders.
Editor's Take:
Interestingly, the idea behind Ethena is not new. Earlier projects such as UXD and Lemma Finance have tried experimenting with the idea of stablecoins backed by delta-neutral positions, but with little success. Either way, it will be interesting to see whether USDe will face the same problems of scalability faced by these earlier projects, especially with market downturns, where funding rates start to turn against shorters.
