In today’s edition, we’re briefing you on Ethena.
Ethena, backed by Arthur Hayes and Dragonfly Capital, among other investors, aims to issue a stablecoin with hedged ETH options as backing.
Keep reading to learn more about $USDe, Internet bonds, and how Ethena works.
Over and out ⬇
News
Bitstamp Collaborates with European Banks
- Bitstamp is in advanced discussions with three major European banks to offer crypto services, highlighting the positive effects of MiCA in facilitating traditional financial firms' entry into digital assets.
Trader Joe's Sues Crypto Platform for Trademark Infringement
- Trader Joe’s has initiated legal action against the crypto platform “Trader Joe” and its co-founder Cheng Chieh Liu due to trademark disputes.
- The grocery chain demands the cessation of the crypto entity's name use, transfer of domain names, and possibly further damages.
Galxe Security Incident Recovery
- A full recovery strategy has been formulated for users affected by the phishing incident. All other Galxe functions remain secure.
- Impacted users will receive compensation in $USDT on Polygon with an added 10% from Galxe's treasury. Adjustments can be relayed before Oct. 16, 8 a.m. PT. Arbitrum Odyssey will recommence on October 16th with a focus on enhanced safety.
Project Updates
Instadapp Introduces Fluid Lending Protocol
- Instadapp has launched a lending protocol named Fluid, integrating features from Aave, Compound, Uniswap, Maker, and Curve.
- Developed over a span of 1.5 years, Fluid targets liquidity fragmentation in DeFi. It is slated for an official launch in January after wrapping up audits and a bug bounty event in December.
Background on Ethena
Ethena Labs has introduced a decentralized stablecoin protocol called USDe, which is built on Ethereum.
Drawing inspiration from Arthur Hayes’ “Dust on Crust” article, USDe aims to provide a solution to a major issue in the crypto world by presenting a censorship-resistant, scalable, and stable form of digital money.
Co-founder Guy Young has stated Ethena’s vision of creating a delta-neutral stablecoin.
The basic product construct revolves around being long on $stETH on one side and shorting the $ETH pair on the other. This creates a censorship-resistant synthetic stablecoin.
There are two forms of yield generated within the product:
Positive carry from being long on stETH.
Yield capture in the futures markets for shorting the ETH perpetual.
There is the potential to tokenize and capture this yield into a stablecoin, delivering two core products:
A censorship-resistant, scalable stablecoin.
The “internet bond” containing the described yield component.
Ethena’s goal is to sit between the extremes of USDT and CDP designs within DeFi which are more decentralized but have scalability constraints.
Ethena’s method involves removing collateral from the banking system and replacing US treasuries in banks with crypto collateral within the crypto ecosystem.
For scalability, Ethena’s approach allows $1 of stETH collateral to generate $1 of stablecoin if a hedge is taken out at a 1:1 ratio.
Ethena Labs has not been launched yet, and there is currently no associated token.
However, early participants in the protocol potentially could be eligible for various incentives and rewards once it goes live.
Guy has highlighted the potential future of the yield market, suggesting that the focus on importing real-world yield on-chain might shift in the next 18-24 months.
He also points out the negative correlation between staked yields and real-world rates.
Also, the basis from shorting ETH perpetuals has a strong negative correlation to real-world rates.
During the last cycle, interest rates went from just below one to zero, and $ETH basis rates sustained above 20% for significant periods in 2021.
Future for Ethena & Stablecoins
Ethena leverages centralized infrastructure to create their product.
Guy highlights the advantage of centralized exchanges in terms of their vast user base, and partnering with centralized exchanges to distribute stablecoins to a broader audience.
When it comes to stablecoins, Guy believes that the future of stablecoins lies in two paths: either becoming fully decentralized or fully regulated. The middle ground will become challenging.
Guy adds that the interest rate environment is crucial for the future of stablecoins. It's essential to consider the full spectrum of macro rates.
He points out that the derivative market in crypto is still relatively small compared to the total market cap, highlighting the potential influence of delta-neutral stablecoins on open interest across the market.
Guy believes that the transition from stable collateral without a yield to stable collateral with a yield will unlock significant potential in DeFi in the coming year.
He also emphasizes the importance of creating products that incentivize exchanges to promote them.
Important Links
Become a Premium member to unlock all our research & reports including access to our members-only discord server
Join thousands of sharp crypto investors & traders by becoming a Premium Member & gain an edge in the markets. For just $33.25/month you’ll get:
*NEW* Launch Alpha - Weekly report highlighting new projects
*NEW* The Trace - Real-time onchain alerts for smart money movements
*NEW* Airdrop Guides - Reports on airdrop opportunities
Access to Members Only Discord server
Premium access to the entire Revelo Intel platform
Analyst Insights reports - actionable trade ideas
Project Snapshots - Monthly protocol-specific performance reports
Project Breakdowns & Timelines - Deep dive 50+ page protocol-specific reports
Notes - Summaries of your favorite podcasts & AMA’s