Original title: I Don’t Think You Understand How Great Ethena Is Original authors: @13300RPM, @FourPillarsFP Researchers Original translation: Rhythm Little Deep

Editor’s Note: Ethena maintains a $5 billion market cap stablecoin USDe with a team of 26, using delta-neutral strategies to hedge against volatility in ETH, BTC, and more, keeping a $1 peg while providing double-digit annualized returns. Its automated risk management and multi-platform hedging create a moat that successfully addresses market shocks and the Bybit hack incident. Ethena plans to drive USDe circulation to $25 billion through iUSDe, the Converge chain, and the Telegram application, becoming a financial hub connecting DeFi, CeFi, and TradFi.

The following is the original content (edited for ease of reading and understanding):

Have you ever tried eating hot noodles while riding a roller coaster? It sounds absurd, but this is the best metaphor for what @ethena_labs does every day: it maintains a stablecoin (USDe) with a market cap of $5 billion, consistently pegged to $1, despite the constant volatility in the crypto market. And all of this is achieved by a 26-person team led by founder @gdog97_. This article will delve into Ethena's unique secrets, revealing the reasons behind its difficulty to replicate, and explaining how Ethena plans to push the circulation of USDe to $25 billion.

Hedging billions of volatility

Stablecoins may seem boring on the surface: $1 is $1, right? But dive into Ethena's internal mechanisms, and you'll find it's anything but simple. Ethena does not use dollars from banks as collateral for its stablecoin; instead, it employs a robust asset portfolio that includes ETH, BTC, SOL, ETH LSTs (liquid staking tokens), and $1.44 billion worth of USDtb (a stable asset backed by U.S. Treasury bonds). These assets are continuously shorted in major derivatives markets to ensure that any fluctuations in collateral prices are offset by corresponding gains or losses in short positions.

Source: Ethena Transparency Dashboard

If ETH rises by 5% and your hedge ratio deviates, it could lead to exposure risks worth tens of millions of dollars. If the market crashes at 3 AM, the risk engine must rebalance collateral or close positions immediately. The margin for error is minimal. However, in the roller coaster market of 2023-2024, Ethena managed billions in daily hedges without a single crash (no decoupling, no margin calls, no funding shortages).

During the Bybit hack, Ethena maintained solvency without any collateral losses. Traditional hedge funds might need an entire floor of analysts and traders to manage such volatility, while Ethena achieved this with a streamlined team and zero mistakes.

Within months of its launch, Ethena became the largest trading counterpart for several centralized exchanges. Its hedging trades even influenced liquidity and order book depth, but few noticed, because stablecoins 'just work well.'

Regarding high yields: Ethena offers double-digit annualized returns when the market is bullish. At first, this reminds one of Terra/LUNA and its 20% Anchor tragedy. But unlike that, Ethena's returns come from real market inefficiencies (staking rewards plus positive perpetual funding rates, etc.), not from minting tokens or unsustainable subsidies.

How Ethena's delta-neutral magic works

When users deposit $1,000 worth of ETH, they can mint about $1,000 worth of USDe. The protocol automatically opens a short futures position. If the ETH price drops, the short profits offset the collateral loss; if ETH rises, the short loses, but the collateral appreciates. The end result is that the net dollar value remains stable. At the same time, when the perpetual contract market is over-leveraged in a bullish direction, Ethena (holding a short position) can collect funding fees, thereby providing double-digit APY for USDe under bullish conditions without the need for fiscal subsidies.

Ethena disperses these hedges across Binance, Bybit, OKX, and even some decentralized perpetual contract protocols to mitigate the risks and margin constraints of a single exchange. A recent governance proposal shows that Ethena plans to incorporate Hyperliquid into its hedge portfolio, engaging in short trading in the deepest liquidity markets. By diversifying short positions, Ethena reduces dependence on any single platform, further enhancing stability.

Source: Ethena Transparency Dashboard

To cope with ongoing adjustments, Ethena deploys automated bots that work alongside trading teams (similar to high-frequency trading systems) to continuously rebalance the entire multi-platform ledger. This is why USDe can maintain its peg regardless of how violently the market fluctuates.

Finally, the protocol employs over-collateralization to respond to extreme downturns and can pause minting under unsafe conditions. Custodial integrations (Copper, Fireblocks) allow Ethena to control assets in real-time, rather than leaving them in an exchange's hot wallet. If an exchange goes bankrupt, Ethena can quickly withdraw collateral, protecting users from a single point of failure disaster.

Robust moat

Ethena's approach seems replicable on paper (hedging some crypto assets, collecting funding fees, profiting), but in reality, the protocol has built a strong moat that deters imitators.

One key barrier is trust and credit lines: Ethena hedges billions by trading with custodians and major trading platforms (Binance Ceffu, OKX). Most small projects cannot easily access these institutions or negotiate minimum collateral requirements for millions of dollars in short positions, which requires institutional-level rigor in legal, compliance, and operations.

Equally important is multi-platform risk management. Splitting large hedges across multiple exchanges requires real-time analytical capabilities on par with Wall Street quant trading teams. Yes, anyone can replicate delta hedging on a small scale, but scaling it up to $5 billion (and rebalancing huge collateral across multiple platforms 24/7) is another level. The complexity of the required analysis, automation, and credit relationships grows exponentially with scale, making it nearly impossible for newcomers to catch up to Ethena’s scale overnight.

At the same time, Ethena does not rely on perpetual free returns. If the perpetual contract funding rate turns negative, it will reduce short positions, relying on staking or stablecoin yields. The reserve fund can buffer against prolonged periods of negative funding rates, while many high-yield DeFi protocols collapse when the music stops.

By not holding all collateral directly on a single exchange, Ethena further reduces counterparty risk; instead, assets are stored in custodians. If a trading platform becomes unstable, Ethena can quickly close positions and move collateral off-exchange, minimizing the risk of catastrophic failure.

Finally, Ethena's performance under extreme volatility solidifies its moat. USDe has not experienced a single decoupling or crash amid months of severe market fluctuations. This reliability drives new user adoption, listings, and top brokerage transactions (from Securitize to BlackRock and Franklin Templeton), creating an unreplicable trust snowball effect. The difference between discussing delta hedging and delivering consistently at a billion-dollar scale is precisely why Ethena stands out.

The road to $25 billion

Ethena's growth strategy relies on a self-reinforcing ecosystem where currency (USDe), network (the 'Converge' chain), and exchanges/liquidity aggregation evolve simultaneously. USDe was launched first, driven by crypto-native demand from DeFi (Aave, Pendle, Morpho) and CeFi (Bybit, OKX). The next phase involves iUSDe, a compliant version suitable for banks, funds, and corporate treasuries. Even if only a small portion of the massive bond market in traditional finance (TradFi) flows into USDe, it could push the stablecoin's circulation to $25 billion or more.

Driving this growth is the arbitrage between on-chain funding rates and traditional rates. As long as there are significant yield discrepancies, funds will flow from low-rate markets to high-rate markets until equilibrium is reached. Thus, USDe becomes a hub connecting crypto yields with macro benchmarks.

Source: Ethena 2025: Convergence

Meanwhile, Ethena is developing a Telegram-based application that introduces high-yield dollar savings to ordinary users through a user-friendly interface, bringing hundreds of millions of users into sUSDe. In terms of infrastructure, the Converge chain weaves together DeFi and CeFi tracks, with each new integration bringing cyclical growth to the liquidity and utility of USDe.

It is worth noting that the returns on sUSDe are negatively correlated with actual interest rates, as the funding yield jumped from about 8% to over 20% when the Federal Reserve cut rates by 75 basis points in Q4 2024, highlighting how declining macro rates fuel Ethena's yield potential.

This is not a slow, phase-by-phase approach but a cyclical expansion: broader adoption enhances the liquidity and yield potential of USDe, which in turn attracts larger institutions, driving further supply growth and more stable pegs.

Looking ahead

Ethena is not the first stablecoin to promise high yields or position itself as an innovative approach. What sets it apart is its fulfillment of that promise; amid the most severe market shocks, USDe has consistently remained pegged at $1. Behind the scenes, it operates like a high-level institution, shorting perpetual futures and managing staking collateral. However, what the average holder experiences is a stable, yield-bearing dollar that is straightforward and easy to use.

Expanding from $5 billion to $25 billion is no easy feat. Stricter scrutiny from regulators, greater counterparty exposures, and potential liquidity tightening could introduce new risks. However, Ethena's multi-asset collateral (including $1.44 billion in USDtb), robust automation, and sound risk management suggest it is better equipped to handle these challenges than most projects.

Ultimately, Ethena demonstrates a method to navigate crypto market volatility on an astonishing scale using delta-neutral strategies. It outlines a vision for the future: USDe will become central in every financial domain, from the permissionless frontiers of DeFi, the trading desks of CeFi, to the vast bond markets of TradFi.

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