jakiro
Compilation: Block Unicorn
Ethena is the most successful agreement in DEFI history.About a year ago, its total locking volume (TVL) was less than 10 million US dollars, and it has now increased to $ 5.5 billion.It integrates to multiple protocols in various ways, such as@aave,@Skyecosystem (IE MAKER / Sparklend),@MORPHOLABS,@Pendle_fi, and @eigenlayer.There are so many agreements with Ethena, so that when I recalled another partner, I had to replace the cover many times.In the top ten agreements in TVL, six cooperation with Ethena or Ethena (Ethena ranked ninth).If Ethena fails, this will have a profound impact on many protocols, especially AAVE, Morpho, and Maker. These protocols will be able to fall off to different degrees of debt.At the same time, Ethena has significantly increased the use of the entire DEFI through billions of dollars, similar to STETH’s impact on Ethereum DEFI.Therefore, is Ethena destined to destroy the Defi we know, or does it bring DEFI into the new Renaissance?Let us explore this issue in depth.
How does Ethena work?
Although it has been launched for more than a year, people still have universal misunderstandings about Ethena’s working principles.Many people claim that it is a new LUNA and then refuses to be further explained.As a person who warned LUNA, I found that this view is very one -sided, but at the same time I believe that most people lack enough understanding of how Ethena works.If you think you fully understand how Ethena manages Delta’s neutral, hosting, and redemption, please skip this section, otherwise this is an important reading material that fully understands.
Overall, Ethena, like BTC, benefits from financial speculation and cryptocurrency bull markets.But the way is more stable.With the rise of cryptocurrencies, more and more traders want to do more BTC and ETH, and fewer and fewer traders are willing to be short.Due to the supply and demand, short -term traders pay for more traders.This means that traders can hold BTCs, while shorting the same number of BTCs, thereby achieving a neutral position, that is, when the price of BTC rises, the multi -short position of profit and loss offset each other, and traders can still earn interest rate income.Ethena’s operation is completely based on this mechanism;It uses the current status of complex investors in the crypto market. These investors also hope to profit by earning benefits instead of simply making multi -BTC or ETH to profit.
However, a major risk of this strategy lies in the risk of custody of the exchange, which is reflected in the collapse of FTX and its impact on the first generation of Delta neutral managers.Once the exchange is closed, all funds may be lost.This is why mainstream managers manage capital efficiently and safely, but they are huge negatively affected by the failure of FTX. The most obvious example is @galoiscapital, which is not their fault.Exchange risk is one of the important reasons for Ethena to choose to use @copperHQ and @ceffuglobal.As trusted middlemen, these hosting service providers are responsible for holding assets and assisting Ethena’s interaction with the exchange, while avoiding the risk of custody of Ethena exposed to exchanges.Exchanges in turn can rely on Copper and CEFFU because they have legal agreements with the custodian agency.Total profit and loss (that is, Ethena needs to pay the amount of multiple traders, or the amount of multiple traders owe Ethena) is settled on a regular basis by Copper and CEFFU, and Ethena systematically re -balances its position based on these settlement results.This hosting arrangement effectively reduces the exchanges related risks while ensuring the stability and sustainability of the system.
Casting and redemption of USDE / SUSDE is relatively simple.You can use USDC or other major assets to purchase or cast USDE.USDE can be pledged to generate Susde, and Susde will earn benefits.SUSDE can then be sold to the market by paying the corresponding drop -out fee, or redeem USDE.The redemption process usually takes seven days.USDE can then be exchanged for support assets (corresponding to $ 1) at a ratio of 1: 1.These supported assets come from asset reserves and collaterals used by Ethena (mainly BTC and ETH/ETH derivatives).Given that some USDEs are not pledged (many of them are used for Pendle or AAVE), the income generated by the assets that support these unpacking USDE helps enhance the benefits of SUSDE.
So far, Ethena is relatively easy to handle a large amount of withdrawal and deposits. Although sometimes the sliding point of USDE-USDC is as high as 0.30%.The degree is far from danger to the loan agreement, so why are people so worried?
Okay, if there is a large amount of withdrawal, for example, 50%
How to “fail” Ethena?
Given that we have now understood that Ethena’s income is not “false”, and how it works on a slightly subtle level, what is Ethena’s main true concerns?Basically there are the following situations.First of all, the capital interest rate may become negative. In this case, if Ethena’s insurance fund (currently about 50 million US dollars, it is enough to withstand the current 1%of the sliding point/capital loss under the current TVL) is not enough to cover the loss. EthenaIn the end, it will lose money instead of profit.This situation seems to be relatively unlikely, because most users may stop using USDE when revenue is reduced, which has also happened in the past.
Another risk is the risk of custody, that is, Copper or Ceffu trying to operate with Ethena’s money.The fact that the custodian does not fully control the assets reduces this risk.The exchange has no signature authority and cannot control any wallet holding the basic assets.Copper and CEFFU are both “comprehensive” wallets, which means that the funds of all institutional users are mixed in hot/warm/cold wallets, and there are many risk prevention measures such as governance (that is, control) and insurance.From a legal perspective, this is the structure of bankruptcy isolation trust. Therefore, even if the custodian bankruptcy, the assets held by the custodian are not the property of the custodian, and the custodian has no claim about these assets.In practice, there are still risks of simple negligence and centralization, but there are indeed many preventive measures to avoid this problem. I think the possibility of this situation is equivalent to the black swan incident.
The third, the most commonly discussed risk is liquidity risk.To manage redemption, Ethena must sell its derivatives and spot positions at the same time.If the price of ETH/BTC fluctuates violently, this may be a difficult, expensive and time -consuming process.At present, Ethena has prepared hundreds of millions of dollars in order to exchange USDE to US dollars at a ratio of 1: 1 because it holds a lot of stable positions.However, if Ethena’s proportion of the total liquidation contract (that is, all unsuitable derivatives) is increasing, the risk will be relatively serious, and it may lead to several percentage points of Ethena’s net asset value (NAV).However, in this case, the insurance pool is likely to fill this gap. It is not enough to cause a catastrophic failure to use its agreement by this. This naturally leads to the next topic.
What is the risk of using Ethena as an agreement?
In a broad sense, Ethena’s risk can be divided into two core risks: USDE liquidity and USDE solvency.USDE liquidity refers to the actual available cash, and is willing to buy USDE at a price at a benchmark value of 1 USD or 1% lower than the benchmark value.The USDE solvency refers to that even if Ethena may not have cash at a certain time (such as a long period of withdrawal), if there is enough time to clear the assets, it can obtain this cash.For example, if you lend $ 100,000 to your friends, and he has a house worth $ 1 million.Indeed, your friends may not have ready -made money, and he may not be able to take it out tomorrow, but if he gives him enough time, he is likely to raise enough money to return you.In this case, your loan is healthy, and your friends only have no liquidity, that is, his assets may take a long time to sell.The essence of bankruptcy means that liquidity should not exist, but limited liquidity does not mean bankruptcy assets.
When Ethena cooperates with some protocols (such as Etherfi and Eigenlayer), it will only face major risks only when Ethena’s non -debt is not offset.Other protocols, such as AAVE and Morpho, if Ethena’s products are insufficient for a long time, they may face major risks.At present, the liquidity of USDE / SUSDE on the chain is about 70 million US dollars.Although the quotation can be obtained by using a polymer, it is said that the USDE of up to $ 1 billion can be exchanged for USDC at a ratio of 1: 1, but this is likely to be due to the huge demand for USDE, because this is based on the intention of intent.When Ethena has large -scale redemption, this liquidity may be exhausted.When liquidity is exhausted, Ethena will face the pressure of managing redemption to restore liquidity, but this may take time, and AAVE and Morpho may not have enough time.
To understand why this situation occurs, it is important to understand how AAVE and Morpho manage liquidation.When the debt position on AAVE and Morpho is unhealthy, that is, the ratio of the loan value (the ratio between the loan amount and the mortgage) will be liquidated.Once this happens, the mortgage will be sold to repay the debt, collect fees and return any remaining funds to the user.In short, if the value of the debt (principal + interest) is close to the scheduled ratio compared to the value of the collateral, the position will be liquidated.When this happens, the mortgage will be sold/converted into debt assets.
At present, many people use these loan agreements to deposit SUSDE as mortgages and use USDC as debt.This means that if a liquidation occurs, a large number of SUSDE / USDE will be sold as USDC / USDT / DAI.If all of them happen at the same time and accompanied by other violent market fluctuations, USDE is likely to lose linked to the US dollar (if the clearing scale is very large, of course, it is about $ 1 billion).In this case, a large number of bad debts may be generated in theory. For Morpho, this is acceptable because the vault is used for isolation risks, although certain income vaults will be negatively affected.For AAVE, the entire core pool will be negatively affected.However, in this potential situation of pure liquidity problems, the clearing management method may be adjusted.
If liquidation may cause bad debts, instead of selling basic assets into a market with insufficient liquidity and allowing AAVE holders to bear the difference, AAVE DAO can bear the liability of tokens and positions, but not immediately sold the mortgage.This will allow AAVE to wait until the price and Ethena’s liquidity resumes stability, so that AAVE earns more money (rather than net loss) during the liquidation process, and allows users to receive funds (instead of obtaining nothing because of the existence of bad debts).Of course, this system is valid only when the USDE returns to the previous value. If not, the bad debt will be worse.However, if there is a high probability event that may cause token value to zero, then liquidation is unlikely to get more value than waiting for, and there may be 10-20% differences, because individual holders realize that they realize that some holders are aware of the awarenessAnd began to sell positions at a faster speed than parameter.This design choice is very important for assets that may occur in the foam market. It may also be a good design choice before the Beacon Chain enabled withdrawal, and if it is successful, it may also increase the AAVE vault/An excellent way of insurance system.
The risk of bankruptcy is relatively reduced, but it is not zero.For example, assuming that one of the exchanges used by Ethena is bankrupt.Of course, Ethena’s mortgage is safe at the custodian, but it suddenly loses hedging and now must be hedge in a possible turbulent market.The custodian may also go bankrupt, just as he pointed out with @cryptohayes in South Korea.No matter what kind of protection measures around the custodian, there may be serious hacking or other problems. Cryptocurrencies are still cryptocurrencies and potential risks. Even if these risks are extremely impossible and may be covered by insurance.But the risk is still not zero.
What is the risk of not using Ethena?
Now that we have discussed Ethena’s risk, what is the risk of not using the Ethena protocol?Let’s see some statistics.Half of Pendle’s TVL (when writing this article) is attributed to Ethena.For Sky / Maker, 20% income is attributed to Ethena to some extent.About 30% of Morpho TVL comes from Ethena.Ethena is now one of the main driving forces of AAVE revenue and new stabilization coins.The well -known platforms that have not used Ethena or interact with their products in some way have basically been thrown behind.
In the agreement, there are some interesting similarities between the adoption of Ethena and the use of lido.Around 2020 and 2021, competition for the largest loan agreement is even more intense.However, Compound pays more attention to minimizing risks, which may reach ridiculous extremes.AAVE integrated STETH as early as March 2022.Compound has been discussed in 2021 to discuss adding STETH, but it did not do so until the formal proposal was proposed in July 2024.This time is just when AAVE starts to surpass compound.Although Compound is still relatively large, the total lock is worth 2 billion US dollars, but now it is only one tenth of the AAVE scale, and it once dominated.
To a certain extent, this can also be seen from the relative methods of Ethena with @morpholabs and @aavelabs.Morpho began to integrate Ethena in March 2024, and AAVE did not integrate Susde until November.There is a gap between eight months. In these 8 months, Morpho has increased significantly, and AAVE has lost its relative control over the lending field.Since AAVE integrated Ethena, TVL has increased $ 8 billion, and the income of product users has also increased significantly.This has led to the “AAVETHENA” relationship. Among them, Ethena’s products created higher benefits, which inspired more deposits and brought more loan demand.
Ethena’s “risk -free” interest rate, or at least its “normal” interest rate is about 10%.This far exceeds twice the value of FFR (risk -free interest rate), the latter is currently about 4.25%.Introduced Ethena into AAVE, especially Susde, which has a functionally increase the balanced interest rate of borrowing, because the “benchmark” interest rate of the AAVE inherits Ethena’s benchmark interest rate, even if it is not completely 1: 1, it will be closer.After the previous AAVE introduced STETH, ETH’s borrowing interest rate was roughly the same as STETH’s yield, which had appeared before.
In short, not using Ethena’s protocol may face the risk of low yields and low demand, but to avoid the risk of serious decoupling or collapse of the USDE price, and this risk may be minimal.Some systems like Morpho may better adapt to and avoid potential collapse because of their independent structure.Therefore, it is understandable that the system like AAVE based on a larger capital pool requires a longer period of time to use Ethena.Now, although most of the content is reviewing the past, I want to put forward some views that are more focused on the future.Recently, Ethena has been working hard to integrate DEX.Most DEX lacks short needs, that is, users who want to be short -term contracts.Generally speaking, the only user type that can continue to achieve this is Delta’s neutral trader, of which Ethena is the largest.I believe that being able to successfully integrate Ethena and maintain good products at the same time to maintain a good product. It can get rid of competition by getting rid of its smaller competitors through cooperation with Ethena in close cooperation with Ethena.
