Original Article Title: I Don't Think You Understand How Great Ethena Is
Original Article Authors: @13300RPM, @FourPillarsFP Researchers
Original Article Translation: Deep Locomotion

Editor's Note: Ethena maintains a $5 billion market-cap stablecoin, USDe, with a team of 26 people, using a delta-neutral strategy to hedge against ETH, BTC, and other asset fluctuations, maintaining a $1 peg while providing double-digit annualized returns. Its automated risk management and multi-platform hedging have built a moat, successfully navigating market turmoil and the Bybit hack event. Ethena plans to drive USDe circulation to $25 billion through iUSDe, the Converge chain, and a Telegram app, becoming a financial hub bridging DeFi, CeFi, and TradFi.

The following is the original content (slightly reorganized for readability):

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

Hedging Billions in Volatility

Stablecoins may seem boring on the surface: 1 dollar is 1 dollar, right? But delving into Ethena's inner workings, you'll find it's anything but simple. Ethena does not rely on dollars in a bank to back the stablecoin; instead, it utilizes a robust asset mix, including ETH, BTC, SOL, ETH LSTs (Liquidity Staking Tokens), and a $1.44 billion USDtb (a stable asset backed by U.S. Treasuries). These assets are continually shorted in major derivatives markets to ensure that any collateral price fluctuations are offset by the corresponding profit or loss on the short position.

Source: Ethena Transparency Dashboard

If ETH goes up by 5% and your hedge ratio deviates, it may lead to tens of millions of dollars in exposure risk. If the market crashes at 3 a.m., the risk engine must immediately rebalance collateral or liquidate. The margin for error is minimal. However, in the rollercoaster market of 2023-2024, Ethena manages daily hedges of billions without a single crash (no decoupling, no margin call, no funding shortfall).

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

Within months of its launch, Ethena became the largest counterparty for multiple centralized exchanges. Its hedge trades even impacted liquidity and order book depth, yet few noticed because stablecoins "just work."

Regarding high yield: In a bullish market, Ethena offered a double-digit annual percentage yield. Initially, this evoked memories of Terra/LUNA and its 20% Anchor debacle. But unlike that, Ethena's earnings come from real market inefficiencies (staking rewards plus positive perpetual contract funding rates, among others), not token minting or unsustainable subsidies.

How Ethena's Delta-Neutral Magic Works

When a user deposits $1000 worth of ETH, they can mint around $1000 worth of USDe. The protocol automatically opens a short futures position. If the ETH price drops, the short profits, offsetting collateral losses; if ETH rises, the short incurs losses, but collateral appreciates. The net result is a stable USD value. Additionally, when the perpetual contract market becomes excessively leveraged in the long direction, Ethena (holding shorts) can earn funding fees, providing double-digit APY to USDe in bullish conditions without requiring financial subsidies.

Ethena spreads these hedges across Binance, Bybit, OKX, and even some decentralized perpetual contract protocols to mitigate exchange risk and margin constraints. A recent governance proposal reveals Ethena's plan to include Hyperliquid in the hedge portfolio, engaging in short trades in the most liquid market. By diversifying short positions, Ethena reduces reliance on a single platform, further enhancing stability.

Source: Ethena Transparency Dashboard

To address ongoing adjustments, Ethena has deployed automated bots working in conjunction with the trading team (similar to a high-frequency trading system) to continuously rebalance the entire multi-platform ledger. This is why USDe can maintain its peg regardless of how volatile the market may be.

Lastly, the protocol employs over-collateralization to handle extreme downturns and can pause minting in insecure conditions. Custodial integrations (Copper, Fireblocks) enable Ethena to have real-time control of assets rather than leaving them in exchange hot wallets. In the event of an exchange going bankrupt, Ethena can quickly withdraw collateral to protect users from a single point of failure disaster.

Robust Moat

On paper, Ethena's approach may seem replicable (hedging some crypto, collecting funding rates, 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 via institutional trades with custodial entities and major exchanges (Binance Ceffu, OKX). Most small projects cannot easily access these institutions, negotiate millions of dollars' worth of minimum exchange collateralization requirements for short positions, which require legal, compliance, and operational institutional rigor.

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

At the same time, Ethena does not rely on perpetual free returns. If perpetual contract funding rates flip negative, it reduces short positions, relying on staking or stablecoin yields. A reserve fund buffers through periods of prolonged negative funding rates, while many high-yield DeFi protocols crumble when the music stops.

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

Finally, Ethena's performance during extreme volatility has solidified its moat. USDe has not experienced a single dislocation or collapse during months of severe market swings. This reliability has driven new user adoption, listings, and top-tier brokerage trading (from Securitize to BlackRock and Franklin Templeton), forming an irreplicable trust snowball effect. The gap between discussing delta hedging and delivering round-the-clock at multi-billion scales is precisely why Ethena stands out.

The Road to 250 Billion

Ethena's growth strategy relies on a self-reinforcing ecosystem where a currency (USDe), network (Converge Chain), and exchanges/liquidity aggregators evolve in parallel. USDe was the first to launch, driven by the crypto-native demand from DeFi (Aave, Pendle, Morpho) and CeFi (Bybit, OKX). The next stage involves iUSDe, which is a compliant version suitable for banks, funds, and corporate treasuries. Even if only a small portion of TradFi's massive bond market flows into USDe, it could push the stablecoin's circulation to 250 billion or more.

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

Source: Ethena 2025: Convergence

Simultaneously, Ethena is developing a Telegram-based app that will introduce high-yield dollar savings to ordinary users through a user-friendly interface, bringing hundreds of millions of users into sUSDe. On the infrastructure front, the Converge Chain will interweave DeFi and CeFi tracks, with each new integration contributing to the cyclical growth of USDe's liquidity and utility.

Noteworthy is the inverse relationship between sUSDe's yield and actual rates. When the Fed cut rates by 75 basis points in Q4 2024, the fund's yield surged from around 8% to over 20%, highlighting how a macro rate downturn injects momentum into Ethena's yield potential.

This is not a slow incremental progression but a cyclical expansion: broader adoption enhances USDe's liquidity and yield potential, attracting larger institutions, driving further supply growth, and a more stable anchor.

Future Outlook

Ethena is not the first stablecoin to promise high yields or position itself as an innovative approach. What sets it apart is that it has delivered on its promise, with USDe remaining firmly anchored at 1 dollar through the market's most severe shocks. Behind the scenes, it operates like a high-level institution, engaging in shorting perpetual futures and managing collateral. However, what regular holders experience is a stable, yield-bearing dollar that is simple and user-friendly.

Scaling from 50 billion to 250 billion is no small feat. Heightened regulatory scrutiny, larger counterparty exposures, and potential liquidity crunches could introduce new risks. However, Ethena's multi-asset collateral (including a $14.4 billion USDtb pool), robust automation, and rigorous risk management demonstrate its superior ability to navigate these challenges compared to most projects.

Ultimately, Ethena showcases an approach to harnessing crypto market volatility at astonishing scale through delta-neutral strategies. It paints a future vision where USDe becomes central to every corner of finance, from the bleeding edge of DeFi to the trading desks of CeFi and the vast bond markets of TradFi.

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