Ethena - The Goddess of Yield

Key Insights

• Ethena is the hottest new stablecoin project. It has quickly grown its supply to $500+ million and is on track to reaching the goal of $1 billion by March 2024.
• Following the current meta, Ethena is incentivizing the use and growth of its protocols through points.
• We estimate the price and value of Ethena shards using back-of-a-long-napkin math. We find that they are priced between our bearish and base cases.

Ethena recently launched its protocol that allows users to mint USDe, a yield-bearing synthetic dollar position, against stablecoin deposits. The synthetic dollar position is created by converting stablecoin deposits to stETH and using that as collateral to short ETH on a perpetual exchange. This position is delta-neutral and generates a positive yield if the funding rate isn’t negative and lower than the staking yield. We discussed the pros and cons of this design in a previous report.

Following the current meta, Ethena has chosen to use shards (read: points) to incentivize new users and capital. As usual, there is little clarity about what these shards mean. However, the mirror post announcing the shard campaign has a line about LP users being eligible for an airdrop, indicating a future airdrop.

Users have the choice between staking USDe and receiving value accrual funded from the real yield generated by the protocol (stETH + short ETH funding), or accumulating 20x shards via a LP position in Curve to be eligible for the airdrop. LP positions on Curve will earn a yield via pool rewards determined by normal Curve protocol mechanics outside of the Ethena ecosystem’s control.