© 2026 The DeFi Report. All Rights Reserved.
Hello readers,
The GENIUS Act passed through the Senate on Tuesday. Circle was up another 33% on Wednesday (6.7x from its IPO!). The Treasury Secretary sees a path to $3.7 trillion in stablecoins by 2030. And Tether now holds 1.6% of outstanding T-Bills.
Stablecoin season is here.
Which means it's time for a deep dive on Ethena, the issuer of the largest yield-bearing stablecoin in the market today.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.
Let’s go.
Ethena’s core product is the USDe stablecoin, a crypto-native synthetic dollar pegged 1:1 to the US dollar. Unlike traditional fiat-backed stablecoins (USDC, USDT), USDe isn’t backed purely by bank reserves and T-Bills.
Instead, it’s primarily backed by crypto assets (e.g., staked ETH).
Users deposit USDT stablecoins in the Ethena app (or a supported exchange such as Bybit) and receive USDe in exchange. The user can then hold the stablecoin for liquidity, or stake it (receiving sUSDe) within Ethena to earn yield (currently 6.3% APY).
After a user deposits USDT into Ethena, the protocol will:
Swaps the USDT into a crypto asset (typically stETH and tokenized treasuries such as BlackRock’s BUIDL)
Open up a corresponding short position in the perpetual futures market for the same notional dollar value. This position is designed to hedge the ETH position it now holds as backing:
If the ETH price rises: the loss on the ETH short is offset by the gain on the ETH held
If the ETH price falls: the ETH value drops, but the short position gains value.
This keeps the system delta-neutral while maintaining the dollar peg.
[We’ll cover the risks later in the report]
Users who stake their USDe receive sUSDe, a yield-bearing stablecoin.
The yield comes from three sources:
The staked ETH held in reserve (3-4%). Roughly 6% of the reserves are held in stETH.
Perp funding rates (6-12%, depending on market conditions). Roughly 86% of the yield comes from delta-hedged positions in ETH, BTC, and SOL (mostly ETH).
Reserve interest (from tokenized T-Bills such as BlackRock’s BUIDL). Roughly 6% of the reserves are in tokenized T-Bills.
The yield is streamed continuously, compounded, and distributed to holders of sUSDe on a weekly basis.
Ethena offers a crypto-native stablecoin that exists free of banking custody, yet remains pegged 1:1 to USD via delta-neutral hedging in the crypto perpetual futures market.
sUSDe earns a real yield from staked assets held in reserve, perpetual futures positions, and tokenized T-bills (via BlackRock’s BUIDL).
The team is currently focused on crypto-native adoption + TradFi distribution through key partnerships such as the SEC/FINRA registered Securitize platform, which we cover later in the report.
The Ethena protocol effectively monetizes the cash & carry trade between crypto and fiat markets. Instead of monetizing the strategy for a hedge fund, Ethena packages the output as a synthetic dollar, offering access to anyone in the world.
The protocol earns revenue from three primary sources:
Staking yield on ETH collateral
Perpetual futures funding/basis spreads
Interest on surplus stablecoins
Over the last year, total fees equate to $292 million. It was the second-fastest protocol ever to hit $100m in fees (251 days post-launch).
Ethena takes up to 20% of USDe rewards (funding payments & liquid staking rewards) to ensure the reserve fund is collateralized. The remaining funds are dispersed to sUSDe stakers.
As you might guess, the protocol (and yield) thrives during periods of “risk-on” sentiment from traders (perp rates increase + stETH yield increases). We can see in the data below that sUSDe holders benefited nicely from the blow-off top late last year.
Data: Token Terminal, The DeFi Report
Ethena’s reserve fund (which serves as an “insurance buffer”) accumulates some of the yield (from unstaked USDe) to cover periods of negative funding or unexpected losses — which is designed to ensure that USDe redemptions never go negative.
Given that Ethena launched in the bull market, funding rates have yet to turn negative for a sustained period of time. Therefore, the reserve has not been utilized to date.
As of the May 2025 governance update, the reserve currently holds $61m, with the backing ratio at 101.87%.
Ethena’s proof of reserves are maintained & published on its website.
In addition to the business model that captures native yield, Ethena has plans to launch an Ethereum L2 via Arbitrum (Converge Chain) that will host a native perp DEX (Ethereal) and other financial apps.
This could ultimately introduce fee-based revenue streams from trading & bridging that ultimately benefit ENA holders (the Ethena governance token/investible asset).
The Ethena Foundation recently approved a fee switch, but it will not be turned on until key progress and risk thresholds are met, including:
USDE circulating supply exceeds $6b
Cumulative protocol revenue exceeds $250m
CEX integration for USDe on 4 of the top 5 centralized exchanges by derivatives volume
sUSDe APY spread vs benchmark rate (Fed Funds) between 5-7.5%
The rollout of a standardized procedure for the reserve capital levels
Short-term focus: Grow USDe’s monetary base (currently $5.8b, the 3rd largest USD stablecoin).
Medium-term focus: Monetize via scale and network effects. A larger USDe supply brings more integrations (exchanges, borrowing demand in DeFi, etc), which can open up avenues for new revenue.
End Game: The ultimate plan is to push all Ethena products and users into the Ethena Network via “Converge,” which we cover later in the report.
Ethena’s success is dependent on growing the supply of USDe and building an economic moat around it by leveraging network effects and new lines of revenue.
Ethena is operating at the intersection of the stablecoin market and the global fixed income market. It’s a large market, but it’s also important to note that Ethena’s growth is limited by the amount of open interest in crypto perpetual futures markets. Exceeding 20% of open interest (which the protocol has hit previously) presents additional risks.
Ethena’s growth (and the growth of USDe) is very much tied to the growth of perp markets + bullish market sentiment (lots of long positions paying them to keep their positions open). In fact, this is not a theoretical concern. It has already impacted growth during expansion phases.
The opportunity in front of Ethena today is to go after the current $200b + of non-yielding stablecoins.
They’ve made significant progress already. We believe a short-term target of $15b of USDe is reasonable, considering the demand for yield from crypto natives (10x growth in yield-generating stablecoins over the last year). We think that open interest would need to expand to $150b+ (currently $74b for BTC/ETH/SOL) for Ethena to have the capacity to grow USDe to $15b.
The far larger opportunity (which Ethena leadership explicitly references) is the $190 trillion fixed income market.
The network effect of the dollar and the growth of USDC and USDT are clear signals as to the insatiable demand for US dollars abroad that can be stored and transacted outside the banking system.
Ethena wants to capture this market with a yield-generating stablecoin.
Even a small % of this market into sUSDe would dwarf the entire crypto market. To capture this upside, Ethena needs to bridge the DeFi and TradFi markets via partnerships with large institutions and compliance efforts.
More on this later in the report.
Total Supply of ENA: 15 billion
Circulating Supply of ENA: 6 billion (40%)
Team: the team tokens unlock on a 1-year 25% cliff, with the remaining tokens unlocking on a three-year linear schedule which ends in March of ‘28
Investors: the investor tokens unlock on the same 1-year 25% cliff, with the remaining tokens unlocking on a three-year linear schedule that ends in March of ‘28
The 25% cliff unlock occurred in March of this year.
Currently, there are 172 million ENA unlocks on a monthly basis. At the current ENA price ($.29), this equates to $50m/month of unlocks.
*Please note that the Ethena governance docs do not explicitly state the % of tokens allocated to investors. 25% is an estimate that we cross-checked with Tokenomist and Messari.
Data: The DeFi Report
USDe is currently the 3rd largest stablecoin with nearly $5.9b of outstanding supply. They’ve achieved this in less than 1.5 years.
In terms of yield-bearing stablecoins, USDe has roughly 50% of the market today.
USDe is almost exclusively an Ethereum product today. With that said, minting & bridging is available on Solana ($10m USDe onchain), and the protocol has added SOL as a reserve asset.
TON recently added USDe and currently has $90m of supply onchain.
Data: The DeFi Report
sUSDe is the token that users receive when they deposit USDe into smart contracts to receive the weekly yield (again, this comes from stETH, perp funding yield, and T-Bill yield).
Currently, 60% (peaked at 78% in Dec. of last year) of the outstanding supply is staked and earning yield.
The protocol captures the yield and holds it in reserve for the USDe that is not staked.
Data: The DeFi Report
Over the last 90 days, the protocol has averaged $5m of weekly payouts to wallets holding sUSDe
Payouts are in USDe, which is converted from protocol earnings using the existing supply
Data: The DeFi Report
As noted, 60% of USDe is currently staked, earning the yield
11.3% is currently in Ethereal (an L3/appchain for spot and perp trading powered by USDe). The protocol is currently running incentive programs, which have attracted a lot of USDe. Ethereal has yet to launch and is part of Ethena’s broader product suite, designed to get USDe liquidity as a trading pair in addition to its utility as a yield-bearing stablecoin.
11% is held within CEXs.
5% is within Spark (Maker). By integrating with Spark/Maker, USDe becomes more composable within DeFi as it can be used as collateral for loans, yield on structured products, and an onramp to DAI/sDAI.
3% is within the Layer Zero Bridge.
2.5% is on Aave, serving as collateral for loans.
Data: The DeFi Report
USDtb is a separate yield-bearing stablecoin that holders of USDe can access via staking. There is currently $1.46b of USDtb supply earning the yield.
The yield paid to USDtb comes from offchain, tokenized T-Bills (from BlackRocks BUIDL money market fund).
USDtb is part of Ethena’s strategy to diversify yield sources beyond perps and staking.
In addition to USDtb, Ethena is rolling out a new institutional product via the iUSDe token. This is a TradFi-focused wrapper around USDe (pays yield via the same manner as sUSDe), but with transfer restrictions designed to comply with institutional regulations and counterparty requirements. iUSDe has not yet been issued onchain.
Converge is an Arbitrum-based rollup designed for institutional adoption, built in partnership with Securitize—a regulated platform (SEC and FINRA registered) specializing in tokenized real-world assets.
Securitize has already tokenized billions in assets, including BlackRock’s BUIDL fund (BlackRock is an investor in Securitize), Apollo credit vehicles, and KKR’s “Health Care Strategic Growth Fund II,” a $4b private equity fund focused on the healthcare industry.
Five major DeFi protocols have already committed to build on Converge:
Aave
Pendle
Morpho
Maple
Ethrereal
Convege Chain will leverage USDe for liquidity and the ENA token for staking — providing a clear path for value accrual to ENA holders.
Ethena is led by a team combining traditional finance experience with crypto-native expertise.
Founder & CEO: Guy Young. Prior to founding Ethena, Guy spent a decade in traditional finance working in investment banking, hedge fund, and private equity roles.
Chief Operating Officer: Elliot Parker. Elliot was previously a product manager at Paradigm (a top crypto VC firm).
Head of Strategy: Nick Chong. Nick was previously a research analyst at ParaFi Capital (crypto-native VC), where he developed deep insights into DeFi mechanisms.
Per LinkedIn, Ethena Labs (developer of the protocol) has just 12 associated members.
Ethena has attracted an all-star roster of investors across multiple funding rounds that reflects both crypto-native venture interest as well as significant TradFi backing. In total, the team has raised $136.5m.
Initial Seed Capital (July ‘23): $6.5m led by Dragonfly, Delphi Ventures, OKX Ventures, GSR, and Binance Labs.
Series A (February ‘24): $14m raised at $300m valuation. The round was co-led by Dragonfly and Maelstrom (a crypto fund founded by Arthur Hayes). Participation came from Galaxy Digital, Hashed, Castle Island Ventures, Brevan Howard, and Franklin Templeton.
Private Token Sale (Late ‘24): the team raised an additional $100m through the private sale of ENA tokens at $.40 per token and $300m valuation as reported by Bloomberg. The round was led by big TradFi names such as Franklin Templeton and F-Prime Capital (the venture arm of Fidelity). Top crypto VCs also participated, including Dragonfly, Polychain, and Pantera Capital. The stated purpose of the private token round was to support the development of new TradFi products, as well as the development of Converge.
Strategic Round (February ‘25): an additional $16m was raised from crypto exchange VCs such as MEXC, OKX, Deribit, and Binance Labs. We assume the deal was tied to an exchange listing or liquidity provision/market making from the exchanges.
Takeaway: Ethena is sufficiently capitalized and backed by a powerful combination of crypto-native and TradFi investors.
Ethena has been operating in a “blue ocean” market as a first mover in terms of yield-generating stablecoins.
With that said, the market is becoming increasingly competitive.
The success of USDe has spurred a wave of yield-bearing stablecoin projects, including:
sUSDS ($2.4b). This is the yield-bearing version of the Sky stablecoin (previously MakerDAO) which funds the yield with loan stability fees, liquidation proceeds, and real-world asset income (T-bills).
SyrupUSDC ($.66b). Syrup (re-branded from Maple Finance) funds the yield with DeFi yield strategies using USDC.
USDY ($.58b). USDY is operated by Ondo Finance, with the yield coming from RWA investments (T-bills).
In total, yield-bearing stablecoins have grown to a total market cap of $11b over the last year. Ethena has 50% of the market today.
In addition to competing against new protocols offering yield, Ethena may face additional competition from projects like USDC and USDT if they start sharing yield with token holders.
With that said, Ethena’s founder claims that USDe growth drives increased creation of USDT, making the two complementary, rather than competitors (USDT focused on liquidity, USDe on yield).
“For every unit of shorts Ethena adds to the market, a unit of USDT demand is created and is required to be long on the other side to match us. Or in other words, a $1 increase in USDe leads to a $.70 increase in USDT when USDe is backed purely by perpetual positions in the collateral.”
“Why would Tether pay yield when traders pay 10-30%+ annualized to long perpetuals with USDT collateral for them instead? Ethena is the conduit through which this is turned into a product for Tether.”
-Guy Young, CEO/Founder of Ethena
[The statement is based on the fact that 70% of all perpetual swap volume is in USDT]
In fact, this view that USDT and USDe are compatible, rather than competitors, was endorsed by the Tether CEO:
In addition to crypto-native competitors, Ethena is competing with traditional savings and fixed income products offered by TradFi.
With stablecoin legislation in the US likely passing this summer, we’ll see how fast the banking and fintech sector can move to create competing products on crypto rails.
Ethena hasn’t been battle-tested just yet. It’s really that simple in terms of peg stability risk. The protocol launched in February of ‘24. It hasn’t experienced a prolonged bear market in which funding rates turn negative. We can observe this in the chart below.
Data: Glassnode, The DeFi Report
In practice, a sharp move to the downside (30-50%) could pose significant liquidation risk because Ethena must constantly rebalance collateral and margin on exchanges.
If an exchange lags in updating positions or there’s not enough margin posted, positions might liquidate, which could potentially cause a shortfall in assets backing the peg.
Ethena mitigates the risk by maintaining buffers and frequent PnL settlements (every 8-24 hours), but the risk certainly is not zero.
Ethena’s model currently depends on centralized exchanges and custodians. It uses exchanges like Binance, Bybit, and Deribit to open futures positions, and custodians like Copper, Ceffu (Binance’s custody arm), and Cobo to hold assets off-exchange.
This introduces counterparty risk. A black swan event at an exchange could result in USDe temporarily under-collateralized or off-peg. The Bybit hack in Dec. ‘24 (where Ethena had < $30m exposure) highlights this risk. Ethena was able to avoid major losses by using off-exchange custody with legal safeguards. It also mitigates risk by spreading positions across multiple exchanges and doing frequent settlement of profits (so large balances do not sit on exchanges). They also use legal structures to ensure assets remain legally owned by Ethena even if a custodian fails.
Nonetheless, users must trust Ethena’s operational integrity and 3rd party custodians — a departure from pure DeFi protocols like Maker that rely soley on smart contracts.
Ethena also relies on other stablecoins (e.g. USDT in reserve). If one of these stablecoins were to de-peg (like USDC did in the SVB crisis in ‘23), it could hit USDe’s backing value. Ethena keeps some reserves in USDtb (tokenized T-Bills) and other assets to diversify risk, but there is certainly some counterparty risk with exchanges and other stablecoins for investors to consider.
Finally, as with any DeFi protocol, Ethena is exposed to smart contract vulnerabilities. Ethena’s contracts (minting, staking, etc.) have been audited, but exploits are always possible. Ethena’s complexity in terms of interacting with off-chain APIs, oracles, etc. increases the surface area for bugs.
The GENIUS Stablecoin Act just passed the Senate. It does not cover yield-bearing stablecoins or stablecoins backed by non-USD assets. This means that USDe falls outside of the bill, and keeps the protocol in a regulatory gray area in the US. This is how the protocol is operating today (US users do not have access).
With that said, the Act includes a provision directing the Treasury Secretary and other agencies to study “endogenously collateralized stablecoins” (i.e. non-payment, yield-bearing types backed by non-USD assets) within one year.
As such, policy clarity may come later for Ethena. Investors should consider that sUSDe could ultimately be defined as a crypto security, which would be a negative outcome for Ethena.
$50m unlocking/month through ‘28.
Ethena’s growth (and the growth of USDe) is essentially constrained by the growth of the perpetual futures market
What are you betting on with an investment into the ENA token?
We think it’s a combination of the following:
Access to the growing stablecoin market (projected to hit $1 trillion in the next few years), and the leader in yield-bearing stablecoins.
A continuation of bull market conditions in crypto. Ethena is closely tied to bullish sentiment since its yield relies on it via funding rates in perp markets.
Data: The DeFi Report
Exposure to Ethena’s growing integrations with TradFi via Converge Chain
A talented team of builders, investors, and ecosystem support spanning across crypto natives and institutional TradFi.
ENA is currently trading below its realized value (proxy for the cost basis of tokens in circulation) of $.40.
In terms of its Z-Score, ENA is currently trading -.4 standard deviations below its average price.
Data: Glassnode, The DeFi Report
At a price of $.29, ENA is down 77% from its all-time high established in early January ($1.25). For reference, ENA’s all-time low is $.20, which it traded at in August of last year.
Let’s not forget that Ethena sold $100m of tokens in a private round last year at $.40/token, as reported by Bloomberg and The Block.
The protocol currently trades at a TTM price/sales of 5.6, below that of high-growth fintech businesses (roughly 10x).
Given Ethena’s strengthening fundamentals, market share, and our outlook for the crypto markets over the next 6-12 months, we think it presents an interesting opportunity to acquire the token at relatively fair levels.
We think the project could get back to $1.25 (4.3x) with a resumption of bull market conditions later this year (base case).
The bull case would be that Ethena doubles or triples its USDe supply over the next 6-12 months. We think the token could go to $2+ (6.8x) in this scenario.
The bear case would be a bear market for crypto. We think Ethena will struggle in these conditions as demand for the stablecoin is tied to perp funding rates and bullish sentiment. Not to mention, ENA is unlocking $50m tokens/month.
Thanks for reading.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.