Ethena: Decentralized stablecoin inspired by Arthur Hayes.
Earlier this year, Arthur Hayes published an article titled "Shell on the Dust - Creating Bitcoin-based Stablecoins" (source), which roughly stated that the current stablecoin system in the cryptocurrency industry relies too heavily on banks and is not completely decentralized. The article also mentioned a new type of BTC-based stablecoin, which aims to achieve true decentralization of stablecoins.
Encrypted Stablecoins Under Banking Constraints
In the article, Arthur mentioned a crucial issue that stablecoins have always been the most important medium between the crypto world and the traditional world, but there are also many vulnerabilities and crises. First of all, cryptocurrency transactions cannot be avoided without fiat currency, especially the US dollar, as the most important reserve currency in the world. The transaction between the US dollar and cryptocurrency is very important. The industry needs a trading platform that can custody both cryptocurrency and the US dollar. However, the core of decentralized finance is financial operation that does not rely on the banking system. Therefore, most banks have always been reluctant to have anything to do with cryptocurrency (of course, banks that seek high returns will do cryptocurrency business), and the big obstacle in front of them is that the current Western banking system cannot be well compatible with cryptocurrency business. Apart from this, some crypto-friendly banks also need to make various preparations, such as auditing, business, regulation, etc., before they can start cryptocurrency business. However, as long as there is pressure from US regulatory agencies or the industry is filled with FUD, the liquidity of banks' cryptocurrency can easily be shattered and disappear due to external factors, such as the Silvergate Bank's bankruptcy.
Because the Western banking system cannot achieve the rapid and economical transfer of funds in the encryption industry, whether it is trying to transfer funds between internal depositors or between external banks. Moreover, the banking industry is a monopolistic industry protected by government franchise, and banks will not work hard to make such transactions faster or cheaper. However, the encryption industry definitely needs stable coins, and traders need to trade assets between the US dollar and cryptocurrencies faster. Therefore, Arthur proposed an idea in the article to create a token on the chain that can be easily transferred like Bitcoin, but it is anchored to the US dollar. In this way, they can easily enter and exit their funds in US dollars, and the function is completely the same as entering and exiting gold in US dollars, and the advantage is that there is no need for the slow and troublesome intermediary of the banking system.
受 Arthur 文章启发，ethena 出现
translates to
Inspired by Arthur's article, ethena emerges
Soon, Arthur's idea of a Bitcoin-based stablecoin caught the interest of others, such as Leptokurtic, the founder of Ethena. In a post, Leptokurtic stated that he was inspired by Arthur's article to create Ethena. Leptokurtic said, "I believe in the rationale and importance of this product. The most important tool in the crypto field still relies entirely on traditional banking infrastructure, which is also the most important unresolved issue in the crypto field. Someone always needs to step up to solve it. We are working on creating a parallel financial system. If Ethena succeeds, it could become one of the more important infrastructures across DeFi and CeFi. US bonds have always been one of the more important financial reserve assets globally, but this asset class does not exist in the crypto industry. Although the stablecoin market in the crypto industry is large, the global accessible and unlicensed reserve asset market denominated in US dollars is even larger. Ethena's vision is to create a US dollar stablecoin that does not rely on fiat banking systems."
A more suitable alternative to BTC - stETH
Currently, the project Docs has not been made public yet. The website only has a simple interface. Next, we will introduce the project to everyone. Previously, Arthur outlined the mechanism design of the new stablecoin in his article:
-BTC stablecoin achieves stability through Delta neutral hedging.
- Connect to centralized liquidity venues for scalability.
-Asset centralized custody on trading platforms.
Ethena also agrees with this mechanism, but has made two important changes to the implementation of this idea:
-
-在 DeFi 中，ZKS 是一种新型的加密货币。
-STARK 是一种零知识证明技术。
-SCROLL 是一种 Layer 2 扩展协议。
-Initially, ETH and stETH were used instead of BTC.
-In DeFi, ZKS is a new type of cryptocurrency.
-STARK is a zero-knowledge proof technology.
-SCROLL is a Layer 2 scaling protocol.
- Seeking more decentralized and transparent custody solutions.
Currently, Ethena's products are divided into three categories: USDe, Internet Bonds, and Repo Financing.
USDe
The first type of product is the stablecoin USDe provided by Ethena for derivative infrastructure, which allows ETH or its derivatives to be transformed into a scalable, bank-independent, native yield stablecoin USDe. USDe is fully collateralized on-chain and maintains stability through Delta-neutral hedging of stETH on CEX and DEX. Additionally, tokens such as stETH that can generate yield themselves can also serve as hedging assets for USDe, providing an additional layer of security for price stability.
Users can deposit US dollars, ETH, or stETH as collateral to create USDe. The collateral is allocated to various secure, programmable, and transparent on-chain MPC custody contracts. On-chain collateral storage ensures that there is no reliance on centralized service providers for custody, thereby reducing counterparty risk. USDe generates returns for users based on stETH yield and perpetual funding rates for ETH, unlike traditional crypto stablecoins, the returns generated through ETH and its derivatives yield and futures premiums are entirely accumulated by the user.
Let me explain Delta Neutral. Delta Neutral is a portfolio of related financial products whose value is not affected by small changes in the price of the underlying asset. The components of this portfolio typically include options and corresponding underlying assets, with positive and negative deltas offsetting each other to minimize the impact of changes in the underlying asset's price on the portfolio's value. This is the key mechanism that helps maintain the stability of the portfolio.
Internet Bonds
The second type of product, Internet Bonds, are globally used floating and fixed-rate USD-denominated bonds, also based on USDe. They are converted from the underlying yield of stETH and futures markets into fixed income for bondholders, making the first globally accessible and permissionless crypto reserve tool possible. Users can create various fixed and floating rate bond exposures using expiring futures or perpetual contracts, forming a cryptocurrency yield curve.
Repo Financing
Ethena still has a bond repurchase agreement function, and users can also obtain certain interest income by providing liquidity on the Repo product. In addition, it allows users to enhance yield and cross-DeFi composability leverage in the stETH and USDe collateral markets.
Dragonfly leads investment, supported by numerous CEX
Recently, Ethena announced its $6.5 million seed round financing, led by Dragonfly. In addition, it has received support from trading platforms such as Deribit, Bybit, OKX, Gemini, and Huobi, as well as BitMEX founder Arthur Hayes and his family fund. Ethena is also the first derivative stablecoin project in the history of cryptocurrency to receive support from so many CEX platforms at the same time.
Conclusion
Overall, Ethena has several highlights:
-Delta Neutral: 100% trustless encrypted assets as collateral;
- Anti-censorship: not held in custody by the banking system.- Embedded yield: earning profits from stETH and basis arbitrage.-Scalable: No need for over-collateralization.
The emergence of Ethena may bring about a new revolution in stablecoins, which has no auditable US Treasury bonds held in bank accounts and has encrypted collateral that does not require trust outside of traditional finance. Ethena can not only provide scalable on-chain stablecoins, but also enable ETH to be transformed into globally accessible and permissionless Internet Bonds.
Ethena is a project that originated from Arthur Hayes' idea and was led by Drangonfly. It is worth everyone's attention. In terms of returns, Ethena combines ETH staking yield with arbitrage yield, and the funding rate will be very good. If a portion of its returns can be shared with USDe holders in the future, it will be very popular in the cryptocurrency industry.
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