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The Ethena protocol is facing challenges with the funding rate, and the USDe stablecoin strategy needs optimization.
Ethena Protocol Insights: Funding Rate Challenges and Strategy Optimization
Ethena is a stablecoin protocol built on the Ethereum blockchain that provides a "synthetic dollar" USDe through a delta-neutral strategy. Users deposit stETH into the protocol to mint equivalent USDe, and Ethena utilizes an over-the-counter settlement scheme to map the stETH balance to exchanges as collateral, shorting an equal amount of ETH perpetual contracts to achieve delta neutrality.
As of May 9, 2024, the yield on sUSDe is 15.3%, with a total issuance of USDe reaching 2.29 billion USD, accounting for approximately 1.43% of the total market value of stablecoins, ranking fifth.
The income sources of the Ethena protocol are spot staking yields and funding rate income from short positions. The funding rate is the mechanism that links the futures and spot prices in perpetual contracts. In the current bull market, the bullish sentiment is significantly higher than the bearish sentiment, and the short positions held by Ethena can earn substantial funding rate income.
Starting from April 2024, users can stake BTC on Ethena to mint USDe. As of May 9, BTC collateral accounted for 41% of the total collateral. While introducing BTC as collateral diluted stETH staking rewards, it increased portfolio diversification and reduced the risk of de-pegging during a bear market.
Currently, the sUSDe yield has dropped from over 30% to around 10%, affected both by the overall market sentiment and the large short positions resulting from the rapid expansion of USDe. As a stablecoin, USDe still lacks application scenarios, and holders mainly seek to obtain high APY and airdrops.
The main challenges faced by Ethena include:
Insufficient insurance fund: The current insurance fund only accounts for 1.66% of the USDe issuance, far below the official model estimation.
Market OI Limit: The total amount of open contracts restricts the issuance of USDe, and the massive short positions generated by Ethena have caused disturbances in the contract market.
Lack of application scenarios: The USDe lacks practical applications, which may lead to a large number of redemptions after the airdrop ends.
To address these challenges, Ethena needs to:
Quickly replenish the insurance fund to boost user confidence.
Increase the supply of high-quality collateral to raise the USDe supply limit and diversify risks.
Expand the application scenarios of USDe to enhance long-term holding value.
Continuously optimize risk management capabilities to ensure stable liquidity.
Overall, Ethena demonstrates a unique stablecoin mechanism and market sensitivity, but it still needs to continuously refine its strategies in a dynamic market environment to maintain long-term competitiveness.