Ethena's $2B Move: Can a Hedged Stablecoin Challenge the Giants?

Ethena, the issuer of the dollar-pegged token USDe, has announced a $2 billion shelf registration filing, signaling an expansion of its efforts to build a stablecoin governance treasury. This move comes as the supply of USDe has surged to an all-time high of $12.43 billion, marking a 42% increase over the past month. The growth in USDe's circulation has solidified its position as the third-largest dollar-pegged token in the market, trailing only Tether’s USDT and Circle’s USDC.

The Ethena protocol is designed to create and redeem a delta-neutral synthetic dollar, USDe, which is crypto-native, onchain, and scalable. Unlike traditional stablecoins, USDe is not backed one-to-one by dollars but instead uses hedging mechanisms on centralized crypto exchanges to maintain its peg. The protocol executes automated and programmatic delta-neutral hedges with respect to the underlying assets, which include staked Ethereum (stETH), as well as liquid stablecoins like USDC and USDT. This approach minimizes the volatility of the backing assets and ensures the synthetic USD value remains relatively stable across varying market conditions [1].

The Ethena protocol generates revenue from two primary sources: staked asset returns and the funding and basis spread from delta hedging derivatives positions. Staked Ethereum, for example, earns consensus and execution layer rewards, which contribute to the protocol’s revenue. Additionally, the funding and basis spread—arising from the mismatch in demand and supply for leverage in crypto—has historically generated a positive return. The revenue from staked assets is variable, denominated in the native asset, while the funding and basis spread can fluctuate depending on whether the protocol uses non-deliverable or deliverable derivatives positions to hedge the backing asset delta [1].

As the protocol grows, so do its financial metrics. In August alone, Ethena’s cumulative revenue surpassed $61 million, reaching a high watermark for the year. The protocol is now among the top five DeFi protocols by total deposits, and its success aligns with the broader market for dollar-pegged crypto tokens, which has reached an all-time high of $284 billion. This growth has been supported by landmark stablecoin legislation in the United States, creating a favorable regulatory environment for innovative protocols like Ethena [3].

Ethena’s next major milestone is the activation of its fee switch, which would allow holders of the governance token ENA to receive a portion of the protocol’s profits. To proceed with the fee switch, the protocol must meet three criteria: a circulating supply of USDe above $6 billion, cumulative revenue of $250 million, and integration on four of the top five centralized exchanges by derivative volumes. The first two conditions have already been met, leaving only the exchange integrations as the final hurdle [3].

In its pursuit of decentralization and token holder empowerment, Ethena founder Guy Young has emphasized the integration of USDe on major centralized exchanges as a top priority. This effort is part of a broader trend in the DeFi space, where protocols are increasingly seeking ways to distribute profits to token holders while maintaining financial stability and regulatory compliance. As Ethena moves forward with its plans, it will continue to navigate the risks associated with its unique hedging model, including smart contract risk, liquidity risk, and operational risk [1].

Source:

[1] USDe Overview (https://docs.ethena.fi/solution-overview/usde-overview)

[2] Ethena Overview | Ethena (https://docs.ethena.fi/)

[3] Ethena fee switch milestone a 'top priority' as USDe hits $12bn (https://www.dlnews.com/articles/defi/ethena-fee-switch-milestone-a-top-priority-as-usde-hits-all-time-high/)