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Ethena is a decentralised finance (DeFi) protocol that offers a unique approach to stablecoins with its tokenised asset USDe. This is a synthetic dollar that is pegged 1:1 to USD that doesn’t rely on traditional fiat reserves.
Ethena was built on Ethereum to overcome the limitations of existing stablecoins by creating a decentralised, censorship-resistant alternative backed by cryptocurrency assets instead of the typical fiat or commodity-based system.
Ethena’s attractiveness comes from its simplicity: it generates yields for USDe holders through various mechanisms, including staking and yield farming. By staking USDe, users receive sUSDe, representing their share in the Ethena staking pool. As the pool grows, so does the value of sUSDe, allowing holders to earn passive income.
The protocol generates additional yields through two key sources: staking ETH for consensus rewards and profiting from funding rates in perpetual futures markets. These mechanisms combine to sustain Ethena’s operations while providing consistent user returns.
At its core, Ethena uses Delta Hedging, a strategy where Ethena adjusts short and long positions on Ethereum derivatives to offset losses and reduce risk, hence the neutral position.
