Research & Reviews

Introducing Ethena Labs – Internet Bond By The USDe Stablecoin

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Content Guide

Founded by Guy Young, Ethena Labs is a decentralized protocol built on the Ethereum blockchain, aiming to provide a cryptocurrency-based alternative to conventional banking systems. It introduces the ‘Internet Bond,’ also known as USDe, a dollar-denominated, globally accessible, and permissionless savings tool.

What Is Ethena?

Ethena is a decentralized finance (DeFi) protocol, creates a derivative infrastructure aimed at transforming Ethereum into the premier crypto-native, yield-bearing synthetic dollar, entirely independent of traditional banking systems. This initiative positions Ethena as a key player in redefining financial governance in the digital economy, offering a product that includes a unique delta-neutral synthetic dollar, USDe. This suite extends to globally accessible USD-denominated bonds with both floating and fixed rates, alongside mechanisms for capital-efficient and composable leverage, thereby improving the utility and scalability of digital financial instruments.

How Does Ethena Works?

Ethena’s USDe, is a delta-neutral synthetic dollar embedded with yield, marking a significant departure from conventional stablecoin paradigms. Users are empowered to deposit USD, Ethereum, or liquid staking tokens as collateral to mint USDe, introducing a decentralized, scalable, and stable asset that benefits directly from Ethereum’s economic activities and the dynamics of futures markets. This strategy democratizes access to stable financial assets and integrates returns derived from staked Ethereum and the perpetual funding rate basis, offering a compelling value proposition for users seeking yield-generating opportunities.

Ethena Labs landing page
Image: Ethena Labs landing page

Ethena is committed to security, transparency, and programmability through its on-chain Multi-Party Computation (MPC) custodial contracts. This method effectively decentralizes custody, reducing counterparty risks and eliminates the need for centralized servers.

The Hystory Of Ethena Labs

In July 2023, Ethena secured $6 million in seed funding, led by the crypto-centric venture capital firm Dragonfly, with participation from industry figures, including BitMEX founder Arthur Hayes. This funding round shows the industry’s recognition of Ethena’s potential to revolutionize the stablecoin domain. The capital infusion is aimed at accelerating the launch of USDe and its associated bond assets, facilitating testnet trials, fostering partnerships, and making sure the robustness of the protocol through meticulous smart contract audits.

What Are USDe Stablecoins?

Ethena’s approach to USDe creation involves a process wherein users can deposit LST, ETH, or USD, which then undergoes an internal swap to align with the collateral position. This collateral is managed through an off-exchange custody account, supported by Zero-Knowledge (ZK) proofs to affirm solvency, thereby optimizing the funding rate efficiency through strategic executions of 1x short ETH-PERP positions. This carefully engineered mechanism ensures stability through delta-neutral positioning, allowing for a seamless integration of yield-generation from staked Ethereum and funding payments, thereby strengthening USDe’s role as a transparent, secure, and innovative addition to the Ethena ecosystem.

Ethena’s strategic use of derivatives not only ensures scalability without excessive over-collateralization but also guarantees stability through immediate unlevered short perpetual positions upon issuance. This guarantees that USDe’s issuance is always perfectly hedged, maintaining a 1:1 collateralization ratio that is fundamental to its stability and utility as a financial instrument. Furthermore, Ethena’s infrastructure embodies the principle of censorship resistance by decentralizing collateral management away from traditional banking systems, leveraging trustless, programmable custody solutions that are transparent, auditable, and accessible around the clock, thus solidifying the foundational ethos of DeFi.

Ethena’s Shard Campaign

Ethena Labs has launched the Shard Campaign alongside a $50 million USDe deposit initiative, aiming to boost community participation and expand the Ethena ecosystem. This introduction of the USDe stablecoin into the public mainnet underscores Ethena’s commitment to innovation and offers users new ways to participate and earn rewards.

what is ethena
Image source: medium

The Shard Campaign, with its $50 million deposit cap, simplifies access to the Ethena ecosystem, incentivizes users to participate and potentially earn significant rewards. A notable feature of this initiative is the seven-day cooling-off period for deposits, designed to promote thoughtful engagement. During this period, participants can earn daily shards, adding value to their involvement.

This campaign is a strategic move by Ethena Labs to improve long-term community engagement, differing from conventional incentive models that often focus on short-term participation. It highlights the importance of active involvement and offers rewards to sustain user interest.

Through the Shard Campaign, Ethena Labs showcases a community-first approach, emphasizing that a vital and dedicated user base is crucial for the platform’s success. This initiative not only promotes the USDe stablecoin but also sets a new benchmark for community-driven innovation in DeFi.


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