Interview with Ethena founder Guy Young: A new model of stablecoin supported by cryptocurrency.
Podcast source: "Guy Young (Ethena) on a New Model for a Crypto-Backed Stablecoin"
Hosts: Nic Carter
Nic Carter invited Guy Young, the founder and CEO of Ethena, to discuss the development of stablecoins in recent times, the inspiration behind creating Ethena, and how Ethena solves the problem of stablecoins. The following are the key points of the content compiled by BlockBeats:
With the drastic turbulence in the cryptocurrency market in 2022, stablecoins have become a key focus area in the blockchain industry. Mainstream stablecoins such as USDT and USDC do not offer any returns, leading to a significant decrease in their market value. How to enable stablecoin holders to earn returns has become a difficult problem to solve in the industry.
Ethena is a stablecoin project that emerged in this context. Ethena was founded by Guy Yang, whose design inspiration came from a blog post by Arthur Hayes. Arthur Hayes proposed creating a synthetic dollar by shorting Bitcoin, and Guy Yang improved on this by using ETH collateral as one side of the long contract while shorting ETH perpetual contracts. This creates a relatively stable value for the dollar.
The earnings of Ethena stablecoin mainly come from two parts: first, the income generated from ETH staking, which is currently around 4-6% in the current market environment; second, the funding rate obtained from shorting perpetual contracts. The funding rate reflects the long and short game situation in the market, and the overall sentiment in the cryptocurrency market is bullish, so the funding rate has been positive for a long time. The combination of these two sources of income can form a relatively stable positive return.
Compared with other projects that use pledged ETH as collateral to issue stablecoins, Ethena has a higher capital utilization efficiency, and only needs to pledge $1 worth of ETH to mint $1 worth of stablecoins. Ethena also decouples asset custody from trade execution, which helps to reduce the risks associated with centralized exchanges. The project will be launched in non-US regions in the early stages to avoid various obstacles in the US regulatory environment.
Ethena stablecoin consists of two parts: the stablecoin itself and the yield token, similar to the design of DAI and sDAI. This provides a native token with yield for the DeFi system, which can be more widely used in other protocols.
Ethena is currently conducting private financing and plans to conduct internal testing within a month before opening to the public. The project aims to solve the problem of mainstream stablecoins not generating returns, and its non-leveraged design also has relatively higher security. The launch of Ethena undoubtedly brings new choices to the stablecoin market. We look forward to the follow-up development of the Ethena project.
Now let's take a more comprehensive look at the details of the Ethena project:
Ethena's founder, Guy Yang, comes from a traditional finance background and entered the cryptocurrency industry in 2019. Inspired by Arthur Hayes' blog post, he decided to quit his job and run Ethena full-time.
Arthur Hayes' original idea was to create a synthetic dollar by shorting Bitcoin. Guy Yang made two adjustments to this idea: first, using ETH collateral instead of Bitcoin; second, separating asset custody from trade execution to reduce centralized exchange risk. Ethena stablecoin has two sources of income: the revenue generated by ETH collateral and the positive funding rate obtained by shorting perpetual contracts. These two sources are negatively correlated, which can diversify revenue.
Compared to other ETH collateral models, Ethena has higher capital efficiency, with the ability to mint 1 stablecoin for every $1 ETH collateralized. Ethena will also establish a reserve as a risk buffer. Ethena is divided into stablecoins and yield tokens, similar to DAI and sDAI, with the latter being more widely applicable in the DeFi system. Ethena has chosen to launch in non-US regions to avoid regulatory barriers in the US. The project is expected to complete internal testing within a month and then open to the public.
Ethena's main challenge is that the funding rate for short contracts may occasionally be negative, but its designed buffer mechanism can handle this risk. In the long run, Ethena can also add other assets such as Bitcoin to expand its scale and improve capital efficiency. The key is to find a balance and maintain sustainable growth. Ethena's emergence has brought new choices to the stablecoin market. Its non-leveraged and yield features may put competitive pressure on other stablecoin projects.
Overall, Ethena attempts to solve the problem of mainstream stablecoins not generating returns through technological means. Its sufficient capital efficiency and secure mechanism design are worth looking forward to, and we await its future development.
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