Ethena: Delta Neutral Synthetic Dollar USDe | AMA Recap

03/20/246 min read

Mantleby Mantle




Ethena: Delta Neutral Synthetic Dollar USDe | AMA Recap

The recent launch of Ethena has stirred quite a buzz in the DeFi space. With everyone keen to know more about Ethena and its synthetic dollar, USDe, we decided to co-host an AMA with Mirana Ventures. It was a great chance to really dig into what the protocol offers and explore its features, answering all the questions the community had for the Ethena team.

In this AMA, we had Mark (@0xVEER) and Jordi (@gametheorizing) from Mantle, Mavis (@Mirana) representing Mirana, and Ethen’s founder, Guy (@leptokurtic) guiding the session. This AMA is packed with a wealth of information about Ethena and the broader stablecoin landscape — it's definitely one you won't want to miss.

What is Ethena, and what is USDe?

Guy: Users can use Ethena to exchange their assets for Ethena's synthetic dollar, USDe. After acquiring USDe, they have the option to stake. By staking, users can earn yield from two distinct sources. Firstly, the staked ETH collateral inherently generates yield, typically ranging between 3.5% and 4%. The second source of yield derives from the futures market, where you typically get paid to be short on perpetual contracts. In the crypto market, many participants are bullish over the long term, expecting prices to rise. They express this outlook by using leverage through perpetual contracts. Those holding short positions in these contracts often receive payment, which captures the premium from the market's bullish bias. The funding rate, or the cost of holding leveraged positions, plays a crucial role here. It's the cost paid by those who are long to those who are short. When the market sentiment is overwhelmingly bullish, funding rates can surge, reflecting the high cost of leverage in a market expecting price increases. This dynamic creates an environment where stakers can benefit from the stable returns from staked ETH and the returns from the futures market.

Why did you choose to describe USDe as a "synthetic dollar" instead of a "yield-bearing stablecoin"?

Guy: We've given considerable thought to our approach, especially in light of the challenges seen in the last cycle. It's crucial for our industry to reflect on how we market our products to users. There's a particular need for responsible marketing that ensures even less sophisticated users can grasp the underlying risks of the products they're engaging with. I want to clarify to everyone listening that the risks associated with this product are distinct from those of holding traditional stablecoins like USDC or USDT. Our goal is to offer an uncorrelated alternative that presents a different risk profile compared to these stablecoins. That's why we've consciously chosen not to describe it as a yield-bearing stablecoin.

Since its launch, Ethena has achieved significant success. What do you believe is driving this excitement?

Jordi: The demand for leverage typically skyrockets during a bull market, as we observed in 2021. Ethena presents an extraordinary opportunity for those looking to generate yield from their savings, as it's an enormous contrast to the modest 3-5% returns from traditional banking. Many market participants tend to allocate a certain percentage of their portfolio to stablecoins, and providing a way that enables them to earn impressive yields for this idle capital draws users to Ethena. Furthermore, Ethena's effective implementation of the shards campaign, which rewards users for engaging with the platform, has significantly contributed to attracting more users.

The community's primary concern about Ethena relates to the possibility of the funding rate turning negative and the risk associated with that. Could you address this concern?

Guy: The inclusion of staked ETH as an asset in Ethena is a strategic choice, primarily because it offers an additional safety margin, especially in scenarios where funding rates turn negative, it serves as a first line of defense. Moreover, we've established an insurance fund, which is currently capitalized with the proceeds from our private funding rounds. This is a significant step, as these funds are typically allocated for operational expenses, such as team salaries. However, we chose to invest this capital in the product to underline our commitment and to enhance user confidence by directly backing it with our raised funds. Additionally, a portion of the yield generated by Ethena’s portfolio is also allocated to reinforce this fund, further securing the platform's financial stability.

Ethena has been chosen as a Showcase application on Mantle. What synergies exist between Mantle and Ethena?

Jordi: Mantle has increasingly regarded Ethena as a strategic core partner. In the competitive landscape of layer-2 (L2) solutions, offering attractive yields is crucial for drawing users — both Ethereum-based assets and stablecoins. Mantle has already made progress in this area by introducing $mETH, enhancing yield opportunities on the Ethereum side, and securing favorable yields for certain stablecoins, like USDY. Our current focus is on expanding the range of products that provide additional yield opportunities for users on Mantle. This is why we've identified Ethena as a promising platform that aligns with our goal of delivering superior yield options.

What's Mirana Venture's view on Ethana and its roadmap?

Mavis: Mirana has always acted as a venture partner for Bybit and Mantle, fulfilling a dual role — conducting due diligence for Bybit's strategic initiatives and helping to manage Mantle EcoFund. Consequently, our involvement with Ethena has been intensive and collaborative. A pivotal aspect of Ethena is its off-chain custody solution, which is crucial for minimizing counterparty risk while ensuring constant auditability and transparency. This is a significant advantage, and aligns with the criteria we prioritize in platforms during our due diligence.

During Ethena's private beta phase, Bybit became the first centralized exchange partner, providing substantial liquidity. This is particularly significant given that over 90% of Ethereum's open interest is financed by three major exchanges, with Bybit being one of those contributors. The liquidity provision from Bybit is a substantial benefit for Ethena, and Bybit is very proud to be Ethena's day-one centralized exchange partner.

Ethena is set to launch on various L1 and L2 chains. Could you elaborate on the differences between collaborating with Mantle and working with other chains?

Guy: What truly captivated us at Ethena and drew us towards Mantle was the multifaceted nature of our collaboration. The capital support from Mantle is undeniably substantial, providing a solid foundation right from the start. I think that the collaboration made a lot of sense across different areas, whether it's us bringing liquidity, open interest, and trading fees to Bybit and then also finding another use case for $mETH.

From a developer's perspective, the assurance that you're building on a secure and reliable base layer is paramount. Our interactions with the Mantle team have highlighted their ability to balance the commercial aspect of things with a thoughtful approach to innovation. They have successfully curated an impressive ecosystem of decentralized finance (DeFi) applications, enabling seamless composability and integration of new applications like Ethena. Mantle's Ecosystem showcases the commitment to promoting high-quality, innovative DeFi projects and ensures a secure and controlled environment for infrastructure development.

How does Ethena tackle the stablecoin trilemma?

Guy: The stablecoin trilemma is indeed a significant challenge, as it's tough to address all three of its core aspects perfectly. The goal is to balance the trade-offs among these aspects rather than fully optimize each. In this context, Ethena positions itself as a moderate solution, avoiding the extremes. It's not entirely decentralized, as it involves some centralized elements like custodians or CEXs, yet it remains outside the traditional U.S. banking system and fully integrated within the crypto space. Regarding scalability, unlike typical stablecoins, which can grow indefinitely based on demand, Ethena's scalability is limited by the size of the crypto derivatives market. As for stability, the price of USDe can be observed on a variety of platforms, where it has consistently traded within a 15 basis point range around $1, indicating a stable valuation.

Please note, this summary only captures the highlights of our AMA session. To ensure you haven’t missed any crucial insights, we encourage you to listen to the full recording available here. Also, stay updated by following both Mantle’s and Ethena’s X/Twitter accounts for the latest news and updates.

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