The post Ethena offers 27% on stablecoins but where is the yield coming from? appeared on BitcoinEthereumNews.com.

The launch of so-called ‘synthetic dollar’ Ethena (USDe) took place on Monday, alongside a heavily-shilled points programme, labelled as a ‘Shard Campaign.’ So far, over $300 million has been deposited into Ethena, which promises an internet bond with a ‘real yield’ of 27% for users who stake USDe. However, many are sceptical of the project’s sustainability, accusing Ethena of shortsightedness with respect to the source of the yield. After all, this isn’t the first time a stable source of high-yields has been marketed to the masses. The stablecoin (or ‘synthetic dollar‘) is backed by a delta-neutral position that balances a basket of staked ETH derivatives with ETH shorts on centralized exchanges (CEX).  The high yields that have been promised are achieved by adding together the native staking yield (around 5%) and the funding rates paid to shorts, which is currently high (over 20%) due to bullish overall market sentiment. The trade is a common hedge that any user could set up manually. Ethena has packaged this trade along with a points programme to generate hype and is aiming to market itself to retail. Although previous projects based on a similar trade failed to scale, Ethena’s head of growth is banking on using CEX liquidity rather than decentralized exchanges which are less popular.  Funding rate risk In the case of a decrease in the relative demand for ETH long liquidity, the funding rate component falls, eating into Ethena’s high yield and potentially even threatening the USDe peg. Ethena’s head of research, Conor Ryder, is keen to point out that data from the last three years shows negative funding rates on just 20% of days, with just 11% of negative days eclipsing the ETH staking yield. Furthermore, Ryder states that these periods rarely last long and act as an incentive for users…

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Filed under: News - @ February 21, 2024 1:26 pm