Ethena (USDe) has recently caught the attention of Bitwise President, Teddy Fusaro, who has acknowledged it as potentially the fastest-growing USD-denominated asset in the history of crypto. The protocol operates similarly to an ETF, where contributions are accepted from Authorized Participants (APs) to issue units, or USDe tokens, which are then invested in a pre-determined portfolio.
Ethena’s portfolio consists of four main assets: Bitcoin (BTC), Ethereum (ETH), ETH liquid staking tokens, and Tether USDT. These reserves are balanced by equally-weighted short perpetual futures exposure, creating a delta-neutral portfolio that maintains a stable dollar-denominated value over time. The unique aspect of Ethena is that the reserves generate yield through staked ETH and futures interest, which is then distributed to all holders of USDe. Additionally, holders have the opportunity to stake their USDe to receive sUSDe and earn even more yield.
In contrast to traditional stablecoins like USDT and USDC, which are backed by centralized reserves primarily consisting of cash and U.S. Treasury bills, Ethena introduces a new model for stablecoin operations. While stablecoins backed by T-bills generate profits, these gains are typically retained by the companies backing them and not distributed to stablecoin holders. Despite the innovative approach of Ethena, it still carries unique risks such as exchange counterparty risk, exchange hacking risk, smart contract risk, and the potential for negative futures funding.
Teddy Fusaro points out the risks associated with USDe but also highlights the rapid growth and success of the stablecoin. He acknowledges that the support for Ethena is significant, as evidenced by its market cap reaching $2.36 billion, compared to less than $1 billion just one month ago. Although Fusaro admits uncertainty about the future success of USDe, he recognizes the massive potential for interest generation at scale and the substantial market size that Ethena could capture.
As Ethena (USDe) continues to gain traction in the stablecoin market, it presents a novel approach to stablecoin operations and distribution of yield to holders. While the risks associated with the protocol are not to be overlooked, the exponential growth and market cap of USDe indicate a growing interest and confidence in the project. The success of Ethena could potentially reshape the stablecoin landscape and pave the way for new innovations in the cryptocurrency space.