Prologue to the new era of strategic investment Ethena

On November 5, 2024, Trump successfully won the US election , this result marks that the United States is about to usher in an economic change led by traditional industry and decentralized finance. The core of Trump is to break the constraints of dollar hegemony on the U.S. domestic economy, revive the industrial economy, and weaken the excessive control of the U.S. economy by the Democratic Party and the financial capital behind it. In early November, ArkStream Capital had a keen insight into the crucial role Ethena (ENA) played in this historical moment and made a strategic investment of US$5 million in Ethena. As one of ArkStream's heavily invested projects, Ethena's performance has met our expectations and is bringing us excellent financial returns.

Ethena, as an innovator in the DeFi field, is committed to providing a variety of stable and scalable crypto-native currency solutions. Its first stablecoin is the crypto-native synthetic U.S. dollar USDe. The core innovation is to maintain an intrinsically stable value by using a delta hedging strategy to hold spot and corresponding short positions on a variety of mainstream crypto assets. This design does not rely on traditional U.S. dollar bank reserves and can bypass the traditional financial system dominated by the Democratic Party and become a brand new alternative tool to the U.S. dollar.

The second stablecoin USDtb was jointly developed with Securitize, a well-known organization in the RWA field. It relies on BlackRock BUIDL and connects the U.S. dollar, short-term U.S. Treasury bonds and repurchase agreements. and other traditional financial products, creating a digital dollar supported by stable returns from real-world assets, which can efficiently channel funds to domestic industry and the real economy in the United States, supporting Trump's core goals of reviving industry and creating jobs.

It is worth mentioning that World Liberty Financial, led by the Trump family, although WLFI does not adopt the DAO model, has promoted DeFi into the mainstream financial market in the United States. Determination demonstrates its grand vision in the DeFi field. In the DeFi field, among the many market segments and infrastructure projects, those that can generate continuous income have received particular attention, such as the lending platform AAVE, the oracle network LINK, ONDO supported by RWA, and ENA, which promotes crypto-native stablecoin solutions. It is reported that WLFI has invested a total of 750,000 US dollars in Ethena tokens through on-chain transactions. At the same time, it announced a cooperation and plans to use Ethena’s income token sUSDe as a mortgage asset on the WLFI lending platform..

Source: https://x.com/ethena_labs/status/1869413546225983536

RWA’s Stablecoin Investment Perspective

RWA (real world assets), payments and stablecoins constitute three intertwined core elements in the financial field. They can be considered as a whole in a specific financial scenario, or they can be regarded as independent. Special track of meaning. Among the three, the concept of payment is relatively clear, and its application scenarios are similar to those in the traditional financial world. Of the remaining two, RWA refers to digitization through Web3 technology and transformation into transparent and easily circulated assets on the blockchain. This process covers a diverse range of asset classes, including stablecoins, private credit, U.S. Treasuries, commodities, and stocks. Given that stablecoins occupy a unique and significant proportion, stablecoins can also be considered as an independent track. This chapter will discuss the growth rate and market space of RWA and stablecoins from an investment perspective, and focus on analyzing the evolution of the stablecoin market structure, as well as the development trajectory and challenges of crypto-native stablecoins.

Excellent growth rate and broad prospects

Combined total assets of RWA and stablecoins With the value trend chart, we can intuitively grasp their market size and growth dynamics. Currently, the total asset value of the RWA market is approximately US$218.3 billion, of which the stablecoin market size has reached US$203.4 billion, accounting for 93.2%. The stablecoin market has grown from US$30 million in early 2018 to US$203.4 billion now. Such a huge growth not only reflects the strong development momentum of stablecoins, but also highlights its huge market potential. In the field of non-stable currency RWA, the total asset value has increased from US$10 million in 2018 to US$200 million in 2021, and then soared to the current US$14.9 billion. The compound annual growth rate corresponding to this growth trend is also outstanding. . Private credit and the United States played a key role in this growth.

RWA total market capitalization (including stablecoins)

Source: https://app.rwa.xyz/

Stablecoin market capitalization

Source: https: //app.rwa.xyz/stablecoins

RWA total market value (excluding stablecoins )

Source: https://app.rwa.xyz/

Stablecoins, as a unique and key asset class in the RWA field, deserve special attention Pay attention and analyze. Before we get into that, let’s take a brief look at the U.S. dollar and its related assets. With its outstanding international status, the US dollar has become a key currency for cross-border transactions, financial settlements and global investments worldwide. The U.S. dollar and its related assets, such as U.S. Treasury bonds, play a central role in financial markets, further cementing the U.S. dollar's status as the global reserve currency and making it a symbol of global hard currency.

In the cryptocurrency market, stablecoins anchored to the US dollar have played a key role since 2018. They are not only the base currency unit for transactions, but also act as shadow U.S. dollar assets, active in many scenarios such as transfer payments. Taking the average daily transfer volume on the chain as an example, the current daily transfer volume is stable at a high range of US$25 billion to US$30 billion. Even during the market downturn, this data has not been less than US$10 billion. In terms of trading volume, according to CCData’s report, the monthly trading volume of stablecoins on centralized exchanges reached US$1.8 trillion in November 2024, exceeding half of the total market capitalization of the cryptocurrency industry. Combining CoinMarketCap's industry data, we can estimate that the average daily trading volume in November was US$200 billion, which means that the monthly trading volume reached US$6 trillion, which means that stablecoins accounted for 30% of the industry's trading volume in centralized trading volume. . This proportion does not include the transaction volume of stablecoins on the chain, which means its actual proportion may be higher. In addition to the two core indicators of transaction volume and transfer volume, stablecoins also provide stable and sustainable returns by introducing stable-yielding assets such as U.S. Treasury bonds as underlying assets, bringing positive externalities to the industry and further promoting Web3 Connection and integration with reality.

Stablecoin daily trading volume

Source: https://studio.glassnode.com/charts/usd-transfer-volume

Stablecoin market capitalization and trading volume

Source: https://coinmarketcap.com/charts/

Tether’s profits for the first three quarters of 2024

Source: https://tether.io/news/tether-hits-7-7-billion-2024-nine-month-profits-102-5-billion-in-u-s-treasury- holdings-almost-120-billion-usd₮-circulation-and-an-over-6-billion-reserve-buffer-in-q3-2024-attestation/

With the approval of Bitcoin and Ethereum spot ETFs in 2024, capital inflows will push the total market capitalization of the cryptocurrency industry to a new high. We expect that along with the growth of the industry's market capitalization and the continued expansion of the user base. , many key data indicators of stablecoins such as market capitalization, transfer volume and transaction volume are also expected to break through historical highs

The evolution of the stablecoin market landscape

The birth of stablecoins stems from the strong demand for price stability tools in the cryptocurrency industry. In the early stages, mainstream cryptocurrencies such as Bitcoin and Ethereum were difficult to use as stable pricing units due to their high price volatility. Stablecoins passed through The U.S. dollar and other legal currencies are pegged to provide a relatively stable value storage and transaction medium, which allows users to hold a currency. Digital assets that can withstand market fluctuations and facilitate rapid fund transfers. With the increase in market demand for stablecoins, various types of stablecoins have gradually emerged, including fiat-backed stablecoins, decentralized mortgage-based stablecoins, and algorithmic stablecoins. coins, etc. These stablecoins provide users with diverse options to meet different market needs and risk preferences.

When exploring the stablecoin market, we will focus on analyzing several representative stablecoins. These include USDT issued by Tether, USDC issued by Circle, DAI/USDS issued by the MakerDAO protocol, and Terra Algorithmic Stablecoin UST. Understand the characteristics and market performance of various stablecoins through basic analysis of these stablecoins.

USDT, as an early stablecoin that entered the cryptocurrency market, has gained widespread market support and recognition since 2018. It has not only been accepted by many exchanges, but has further penetrated into the primary and secondary markets after 2020. In DeFi protocols, many public chains, and Layer 2, USDT’s market share has always maintained its leading position. Currently, USDT’s underlying assets mainly include U.S. Treasury bonds and overnight reverse repurchases. Transparency is not updated in real time, and USDT has experienced several de-anchoring events in history, with the largest amplitude being close to 10%. Despite this, USDT still ranks among the spot and derivatives trading volumes of mainstream exchanges due to its first-mover advantage and global applicability. Dominant. Mainstream exchanges generally use USDT as their core pricing currency pair. Even if they also support other stablecoins such as USDC or FDUSD, USDT’s trading volume and market depth still far exceed those of other stablecoins.

Tether’s 2024 Q3 Reserves Report

Source: https://tether.to/en/transparency/?tab=reports

Tether’s past transparency report

Source: https://tether.to/en/transparency/?tab=reports

USDC, issued by Circle, a company with strong regulatory resources and multiple asset management licenses. Since its launch in October 2018, USDC has become the second largest stablecoin in the cryptocurrency market, with a market share of approximately 20.9% Based on its excellent compliance and transparency, USDC's underlying assets are mainly composed of US dollar cash, short-term Treasury bonds and US overnight reverse repurchase agreements. Most USDC reserves are stored in Circl.e Reserve Fund (Circle Reserve Fund, a 2a-money market fund registered with the SEC), which provides daily portfolio reporting through BlackRock to ensure transparency. At one time, the issuance of USDC was close to 77.6% of USDT. However, in the bankruptcy of Silicon Valley Bank (SVB) in March 2023, Circle’s USDC reserves of approximately US$3.3 billion were stored in SVB, accounting for one part of its total reserves of US$40 billion. Small portion. This news once triggered market panic, causing the price of USDC to plummet and de-anchor, and even triggered a run. However, with the joint rescue plan of the Federal Reserve and the Treasury Department, Circle announced that SVB's deposits are 100% safe, market panic gradually subsided, and USDC prices returned to near normal levels. After this incident, the vulnerability of USDC to the risks of the traditional banking system was fully exposed, and its issuance also showed a downward trend. In order to improve the stability and transparency of USDC, Circle has implemented a series of measures. Although the market share has failed to return to its previous high point, USDC's natural compliance allows key data indicators such as on-chain transaction volume and number of transactions to remain competitive with USDT.

Circle Reserve Fund

Source: https://www.blackrock.com/cash/en-us/products/329365/

DAI/USDS is a decentralized stablecoin issued and managed by MakerDAO, aiming to maintain a 1:1 fixed exchange rate with the US dollar. Initially, DAI is generated through an over-collateralization mechanism, and users can lock crypto assets (such as Ethereum) in the smart contract of the Maker protocol to generate DAI. This mechanism requires the value of the collateral to be greater than the amount of DAI generated to ensure that the value of DAI is stable. However, DAI may lead to serial liquidations when the price fluctuates violently. Coupled with the openness and transparency of on-chain transactions, minters' liquidation lines are easily targeted by directional snipers, leading to liquidation failures and bad debts. To reduce these risks, MakerDAO has introduced more collateral options, such as USDC and wBTC, and established a dedicated risk management team. The decentralized nature of DAI provides unique advantages in certain application scenarios, especially in the DeFi field where it plays a central role. Not only as a transaction medium, it is also widely used in various financial activities such as lending, payment and staking. Although DAI has a smaller market share compared to centralized stablecoins such as USDT and USDC, its market capitalization still occupies a place in the global stablecoin marketland.

DAI/USD Collateral List

Source: https://makerburn.com/#/rundown

UST, as a decentralized algorithmic stablecoin in the Terra ecosystem , aiming to maintain a fixed exchange rate of 1:1 with the US dollar. It relies on the smart contract of the Terra blockchain and uses Luna tokens as value support. Users destroy Luna of equal value when minting UST, exchange Luna of equal value when destroying UST, and then maintain the price through the behavior of market arbitrageurs. Stablize. During periods of Luna price increases, UST's mechanism is able to promote a positive cycle, the so-called "positive spiral" upward. However, when the price of Luna falls, because Luna's market value cannot support the market value of UST, UST is prone to fall into a "death spiral", that is, the price drop causes UST to break anchor. UST once provided high returns through the Anchor Protocol to attract user deposits, thereby expanding its scale and becoming one of the major stablecoins in the market. Unfortunately, during the Terra ecological collapse event in May 2022, UST's price stability mechanism encountered serious challenges, which eventually led to its decoupling from the US dollar and its price returning to zero. This incident highlights the risks and challenges of purely algorithmic stablecoins in terms of market confidence and algorithm design, especially when these challenges become particularly apparent under extreme market conditions.

It can be seen that in the stablecoin market, legal currency-backed stablecoins have occupied most of the market and the market size is growing. However, it is precisely because of the continuous emergence of the market To meet transaction needs, decentralized stablecoins have been exploring new paths. Among these, Ethena has stood out as the leader. USDe issued by Ethena, as a synthetic dollar, has occupied a place in the DeFi field with its innovative financial solutions. USDe features an advanced delta hedging strategy to maintain its peg to the U.S. dollar, which makes it stand out among traditional stablecoins. In addition, USD0 issued by Usual is also worthy of attention. This stablecoin deeply integrates the robustness of traditional financial instruments with the transparency, efficiency and composability of DeFi by introducing RWA as the underlying support. With its permissionless and compliant framework, USD0 directly feeds real income from RWA back to community users, demonstrating the competitiveness of new stablecoins in the market. The emergence of these emerging stablecoins not only enriches the diversity of the market, but also brings more choices and investment opportunities to users.

Core indicators of crypto-native stablecoins

We will summarize the above When it comes to stablecoins such as USDe and USD0 that do not rely on legal currency support, they are defined as "crypto-native stablecoins". This type of stablecoins includes stablecoins that are collateralized by mainstream cryptocurrencies such as Bitcoin and Ethereum, and the algorithm anchors the stability of the price. coins, as well as stable coins that use neutral strategies to anchor value.

When evaluating these crypto-native stablecoins, we will consider multiple dimensions, the most important of which are the stability of the stablecoin, market capitalization size and application scenarios (including DeFi integration and center exchange support)

Stability is a key indicator to measure the value of a stablecoin. The core value of a stablecoin lies in the stability of its value, that is, its ability to maintain a stable exchange rate with the anchored asset. If the stablecoin cannot maintain this anchoring relationship, Its "stable" characteristics will be questioned, thus losing its basic function as a stable currency.

Under the premise of ensuring stable anchoring of stablecoin prices, stablecoins must reach a certain market size before they can become mainstream currencies and then occupy a place in the financial ecosystem. If a stablecoin cannot achieve scale expansion, its impact will be The power and practicality will be limited, making it difficult to have a significant impact in a highly competitive market.

The market size of stablecoins depends on the breadth of its application scenarios. Stablecoins that lack actual application scenarios, no matter how large their market value is, will be difficult to stabilize their market position, just like a rootless tree. Therefore, stablecoins must We will do everything possible to obtain a broader user base and diversified application scenarios to ensure the stability of its value and the enhancement of its liquidity.

We. Why invest in Ethena

Ethena’s vision is to build a bridge between DeFi, CeFi and TradFi by reinventing the cryptocurrency system to promote the prosperity of the next generation of Internet finance. Its first stablecoin USDe has already been used in many key areas of DeFi, Including currency markets, leveraged collateral in derivatives markets, stablecoin infrastructure, interest rate swap agreements and spot AMMs DEX, etc., have achieved deep integration. In the field of exchanges, Ethena’s liquidity pool not only provides support for existing centralized and decentralized trading platforms, but also helps emerging exchanges solve liquidity problems in their early stages, becoming a cityMarket-leading depth and off-market liquidity provider. For TradFi, Ethena’s USDe is favored for its unique yield. The stablecoin combines the native real yield of two billion-dollar cryptocurrencies, and its yield is weakly negatively correlated with traditional financial interest rates. The underlying asset is Hosted by a TradFi approved custodian. USDe provides large investors with a convenient way to capture the cryptocurrency market’s outsized returns from a single asset. As real interest rates fall, market speculation on cryptocurrencies and the growth of leverage demand are expected to further push up Ethena’s USDe earnings, making it an important driving force in attracting trillion-dollar-scale TradFi entities to invest in the Ethena ecosystem.

Delta Neutral Synthetic USDe

The USDe stablecoin launched by Ethena, as a crypto-native asset, is different from the U.S. dollar stablecoin that relies on traditional assets such as U.S. Treasury bonds as underlying support. Its issuance mechanism involves holding mainstream cryptocurrency spot and trading The short position established. This innovative model of stablecoin plays an important role in the market, not only locking in the value of mainstream crypto assets but also injecting liquidity into the derivatives market. Especially during the bull market, as the prices of mainstream assets rise and the scale of derivatives contracts expands, the scale of USDe also grows. In addition, USDe’s short funding rate provides holders with a more attractive rate of return compared to traditional stablecoins such as USDT. This advantage has attracted more users to choose USDe, further promoting the expansion of USDe.

Minting, Redemption and Pledge

USDe's minting process allows users to exchange underlying assets for USDe by sending them to the protocol, while redemption requires users to destroy USDe to redeem the original supporting assets. Staking USDe allows users to lock USDe in a smart contract to earn income. When users stake USDe, they receive sUSDe, whose value increases as the protocol’s earnings accumulate. Users can unstake sUSDe at any time to obtain USDe after the accumulated value.

Delta neutral anchoring mechanism

USDe’s anchoring mechanism mainly implements automation and Programmed delta neutral hedging strategy to implementThe current stability relative to its underlying supporting assets. This strategy offsets the risk of price changes in spot assets by establishing a short position in the derivatives market equivalent to the spot asset's value, allowing USDe's synthetic dollar value to remain relatively stable under most market conditions. In addition, the income sources of the Ethena protocol include spot staking income and funding rate income from short positions, which further enhance the stability of USDe. Through this series of mechanisms, USDe can become a reliable trading medium and value storage tool in the crypto market, maintaining a stable link to the US dollar.

Hedging strategy and risk control

Ethena's hedging mechanism is a system composed of off-chain application services. It interacts with on-chain smart contracts and the Ethereum blockchain and is responsible for obtaining market data, verifying data integrity, calculating risk exposure, and coordinating Internal system information, publish prices for minting and redeeming USDe, determine order routing and execution locations, verify the integrity of information and operations in real time, monitor the availability of dependencies, coordinate collateral flows, and publish real-time developments. The system focuses on protecting protocol collateral to ensure the stability of USDe and the real-time integrity of the system. In addition, Ethena has a deep understanding of various potential risks, including smart contract risks, external platform risks, liquidity risks, custody operation risks, exchange counterparty risks and market risks. To address these challenges, Ethena proactively takes steps to mitigate and diversify these risks to enhance the robustness and reliability of the entire system.

Transparency and financial security

The core value of a stablecoin lies in its anchoring ability, that is, maintaining the stability of the value of the legal currency to which it is linked. Historically, some stablecoins such as USDT and USDC have experienced unanchoring due to insufficient transparency and imperfect risk control mechanisms. To this end, Ethena ensures the stability and transparency of its asset management by adopting multi-signature and asset custody mechanisms, as well as establishing in-depth cooperation with exchanges. In addition, Ethena has established sufficient reserve funds to cope with fee fluctuations in extreme market conditions. This series of strategies not only enhances the credibility of USDe, but also provides a solid security guarantee for USDe’s earnings, ensuring the interests of holders and the stability of the market.

TradFi-friendly digital dollar USDtb

USDtb is an institutional-grade stablecoin. Relying on BUIDL of BlackRock, the world's largest asset management company, the endorsed assets include high-quality short-term treasury bonds, ensuring its excellent security and trust. In the field of DeFi, USDtb is not only fully accessible and easy to integrate, and able to It can be used as collateral in centralized exchanges and major brokers, providing traditional financial institutions with direct access to DeFi. In addition, USDtb also has a unique on-chain direct minting and redemption mechanism, achieving all-weather services. Further enhancing its competitiveness and convenience in the digital asset market

As an independent product from USDe, USDtb provides users with a new choice with completely different risk characteristics. To enable USDe to respond to market challenges more effectively, especially during periods of negative funding rates, Ethena can close USDe's hedging positions and reallocate assets to USDtb, thereby mitigating related risks and enhancing the stability and risk resistance of the entire system. .

ENA token design

ENA token plays a key role in the Ethena ecosystem. It is both a governance token and Gives holders the right to participate in key decisions, such as electing risk committee members and shaping direction, and also provides the opportunity to stake as sENA to obtain additional income. As ENA will be used as a voting tool for the Ethereal derivatives exchange in the future, its importance in the Ethena development blueprint will become more prominent. These functions not only consolidate ENA as a voting tool. It is the core of the Ethena protocol and is crucial to maintaining the decentralized governance of the protocol and motivating user participation.

In terms of liquidity, ENA has performed well on mainstream exchanges, and its trading volume continues to be at the forefront. This not only proves the market activity of the Ethena protocol, but also shows that it has been widely recognized and accepted by the market.< /p>

Operation resources

Ethena has implemented a series of hedging strategies through in-depth cooperation with major well-known exchanges to deal with emergencies in the derivatives market such as contracts, ensuring the stability and security of USDe.In addition, the use of USDe as a trading denominated currency pair is also gradually implemented, thanks to Ethena's efforts in increasing liquidity to mitigate risks. In terms of resources, Ethena cooperates with a number of the world's top market makers, which provide it with liquidity and market depth, further enhancing USDe's market adaptability and resilience.

Source: https://ethena.fi/ecosystem

Ethena’s future prospects

In the field of stablecoins, the competitive landscape is far from determined. Although USDT and USDC occupy leading positions, emerging competitors are fully capable of challenging their market positions. The key is to choose stablecoin protocols that have unique mechanisms that can stably anchor value, increase market value, and expand application scenarios. Just as DEX already accounts for 10% of CEX trading volume, decentralized financial products are rapidly occupying market resources because of their verifiability and convenience. We predict that decentralized stablecoins represented by Ethena will continue to grow the market in 2025. Scale, reaching 10% market share, or US$20 billion.

At the same time, we believe that Ethena will become one of the important financial tools for Trump to implement. Trump's implementation will also promote Ethena's strategic position in the U.S. economic revival and global financial reshaping, becoming an important support for the U.S. local and global digital financial ecosystem. As an industry pioneer, ArkStream Capital will work with Ethena to witness the great changes in this era of decentralized finance.

Reference materials

Official documentation: https://docs.ethena.fi/< /p>

USDtb: https://usdtb.money/

BlackRock BUILD: https://securitize.io/learn/press/blackrock-launches-first-tokenized-fund-buidl-on-the-ethereum-network

USDtb as a USDe-backed asset and reserve fund eligible asset proposal: https://gov.ethenafoundation.com/t /proposal-usdtb-as-a-usde-backing-asset-and-eligible-asset-for-the-reserve-fund/385

Transparency of USDtb: https://usdtb.money/transparency

https://mirror.xyz/0xF99d0E4E3435cc9C9868D1C6274DfaB3e2721341/_qreGT_6NMoq-YcUwRNk0WGUea2ciuehovSmamJPw9w

BlackRock BUILD: https://intel.arkm.com/explorer/address/0x13e003a57432062e4EdA204F687bE80139AD622f

https://intel.arkm.com/explorer/entity/blackrock< /p>

BlackRock BUILD: https://etherscan.io/token/0x7712c34205737192402172409a8f7ccef8aa2aec

BlackRock BUILD: https://app.rwa.xyz/assets/BUIDL

Stablecoin trading volume in November: https://cointelegraph.com/news/stablecoin-trading-volume-surges-1-8-t-november

Ethena FAQs: https://www.notion.so/ethena/Ethena-FAQs-3ccc1437e13343f8b74c0d005e4f5128?pvs=4

Ethena Chartbook: https://ethena.notion.site/Ethena-Chartbook-c35c316346ee4c7e97aff49a9eadd87e

Ethena 2024 Roadmap: https://mirror.xyz/0x29a99F7Fe080F72223dAd48D5E1E86670a984326/odrjQynMr3PrtRhCzHa2k7tcdNIpibJLyRe7yXY944Q

Dust on Crust Part Deux: https://cryptohayes.medium.com/dust-on-crust-part-deux-85a4670239d6

Circle: https://www.circle. com/usdc

Tether: https://tether.to/