Ethena: The next LUNA?Is the collapse or spiral rising?

Author: Hamster Source: Chainfeeds Research

The USDE developed by the Ethena team is a synthetic US dollar based on Ethereum. The Delta Hedging strategy is used to hedge market volatility and achieve effective use of funds.

The inspiration of the Ethena project comes from an article written by Bitmex Lianchuang Arthur HayesThis article explores the potential and innovative application of stable currency in the cryptocurrency market.Arthur Hayes proposed that by combining blockchain technology and complex financial instruments, a new type of stable currency can be created.EssenceThis kind of thinking inspiredEthena team develops USDE: A synthetic US dollar based on Ethereum, using Delta Hedging strategy to hedge market volatility risk and achieve effective use of funds.

Ethena Labs team and members have worked at well -known institutions such as Goldman Sachs, AAVE, Lido, and have the ability to deal with complex financial tools and blockchain technology.In terms of financing, Ethena successfully raised from important encrypted investment funds including Dragonfly Capital, Binance Labs, Delphi Digital, and Okx Ventures.$ 20.5 million in fundsEssenceThe support of these funds and resources has made Ethena grow rapidly and attracted a lot of users’ attention.It was officially launched in February 2024, but as of now, its market value has exceeded $ 1.7 billionEssence

Mechanism analysis

As a unique financial mechanism product, USDE aims to provide a stable and encrypted capital preservation tool with a US dollar. The core products are “Internet bonds”.This synthesis, that is, USDE, is supported by Ethereum as a mortgage to ensure its ability to scalability, decentralization, and resisting traditional financial system review.Specifically, if the price of Ethereum falls, the short -term short position of USDE will have profitable, thereby helping to offset the impact of the price decline of Ethereum on USDE value.

Delta hedge mechanism:USDE ensures stability through a Delta neutral hedging strategy. This strategy involves adopting a hedging barrier such as Ethereum mortgage in the derivative marketEssenceThis strategy helps to stabilize the value of USDE and resist the influence of ETH price market fluctuations.
Income generation: USDE generates the income through two main sources:

Praising rewards: Reward from pledged Ethereum, including consensus layer inflation awards, execution layers and MEVs.These rewards change with the amount of network activities and pledge ETH.

Fund and foundation difference: Delta pairing demented by Delta set up when establishes USDEEssenceThe fundamental rate rate and the basis are from the imbalance of the demand for digital asset exposure, which provides additional benefits for those who hold short positions.
Risk management: Ethena uses a diversified hedging strategy and a variety of hosting solutions to cope with the risks of operations, markets and smart contracts.The use of off -site settlement of the agreement to reduce the risk of trading opponents, and improve security and transparency by maintaining mortgage assets and hedging chain chains.
Issuing and redemption: Through the direct interaction with Ethena Labs,USDE can be cast or redeemed by users who pass KYC/KYB.This controlling process helps maintain the tightly linked to USDE and the US dollar, and adjust the supply when necessary.

The design of USDE clearly focuses on maintaining stability and income without relying on traditional bank infrastructure, providing an alternative for the DEFI fieldEssenceThis setting not only promotes the stability of digital currencies, but also provides potential rich income opportunities for its holders.

also,Ethena also introduced to the governance token ENAIt aims to further integrate user participation and agreement governance in its DEFI ecosystem.ENA token holders can participate in the governance decision -making decisions of the Enthena protocol, such as the update and parameter adjustment of the vote decision protocolEssenceThe introduction of ENA not only promotes the participation of the community, but also enhances the decentralization and transparency of the agreement.

Compared with LUNA mechanism:

The mechanism of Luna and Ethena is significantly different. These differences are mainly reflected in the support method, risk management strategy, and overall design concept of stable coins.

Stable currency support mechanismThe

Luna:As an algorithm stablecoin, the price stability of the USST is dependent on the dynamic exchange mechanism with the LUNA tokenEssenceWhen the US market price is lower than $ 1, users can use LUNA to cast UST at the cost of price below the market price, thereby pushing the US price; otherwise, the USS is destroyed to obtain LUNA, thereby maintaining its linked to the US dollar.
Ethena:Unlike USSDE, USDE is a synthetic US dollar supported by physical assets (Ethereum) mortgaged.EssenceThis means that the stability of USDE does not depend on the adjustment of the algorithm to adjust the supply volume, but is achieved by the price fluctuations of Ethereum in the derivative market.

Risk managementThe

Luna:Due to the adjustment of the stable coin supply, the risk of LUNA is higherEssenceIn the previous cycle, this model caused a sharp deterioration of market confidence, which eventually triggered “death spiral”, that is, the UST lost linked hooks and caused LUNA value to plummet.
Ethena: Ethena’s USDE uses Delta hedging strategy to manage risks, and hedge the price of asset prices by opening the reverse position of mortgage assets in the derivative market.In addition, Ethena also uses off -site settlement services to reduce the risk of trading opponents, and pay more attention to physical mortgage and regulatory compliance.

Design conceptThe

Luna:The design pursues completely decentralization and algorithm independent regulation, attaches importance to the network effect and the incentive mechanism of the token economy.
Ethena:The design pays more attention to stability and security. The use of hedging strategies in traditional finance combines the advantages of decentralization and the stability of traditional financeStrive to provide a stable and reliable currency tool in DEFI.

In general, the mechanism of LUNA and Ethena reflects different stable currency design philosophy and market positioning. Among them, LUNA emphasizes the role of algorithms and market mechanisms, while Ethena combines traditional financial stability management methods to use physical mortgage and hedge.Strategies to ensure the stability and safety of stable currency.

Risk analysis

Although the Ethena project has adopted some innovative stability mechanisms in design, there are still several potential risks:

Market risk and liquidity risk: Ethena relies on market performance of Ethereum and other encrypted assets, and these assets may suffer price fluctuations.In addition, the effectiveness of financial derivatives and hedge strategies may also be affected by market liquidity, especially when the market fluctuates violently, it may not be able to effectively perform hedge operations.
Technology and operational risks: Although complex financial derivatives and strategies can improve stability, it also increases the complexity of the system.Technical faults, vulnerabilities or operation errors in smart contracts may cause losses.In addition, depending on the centralized exchange for certain operations may increase centralized risksFor example, the exchanges’ own security issues or liquidity crisis.

Law and compliance risk:As a cryptocurrency project involving financial derivatives, Ethena needs to operate in multiple jurisdictions of the world and needs to comply with the regulatory regulations of cryptocurrencies and financial derivatives.Changes in legal policies may affect the legitimacy of the project or increase the cost of complianceEssence

Relying on specific economic models: Ethena’s stability relies on the assumptions of its economic model to a certain extent, such as market behavior and user participationEssenceIf these assumptions are not realized, or the behavior of market participants is inconsistent with expectations, it may affect the performance and value of its stable currency USDE.

Trust and acceptance:As an emerging stablecoin project, it is important to establish and maintain the trust of users and investors.Any negative report on the reputation of the project or the decline in market confidence may lead to user loss, which affects its market performance and stability.

Summarize

Although Ethena’s USDE mechanism design aims to provide a more stable stablecoin solution that can avoid the lessons such as LNUA and other cars to a certain extent, it is impossible to completely eliminate risks.For Ethena, the future road will be a continuous test of its innovation mechanism. While maintaining flexibly market changes, it will continue to optimize and adjust risk management strategies.

In the world of cryptocurrencies, no matter how careful the system is designed, it is necessary to face the unpredictable market turmoil.