In the field of settlement and asset tokenization, Ethena is vigorously expanding its product portfolio.
Author: ASXN Daily
Translation: Deep Tide TechFlow
Ethena
Ethena's strategy revolves around two major application scenarios of cryptocurrency, which have been explicitly mentioned in multiple interviews with the team:
“Settlement for speculation”: This includes meme coins, derivatives, yield farming, and casino-like activities. The team has carved out a niche in this market with its USDe and sUSDe products.
“Settlement for stablecoins, digital dollars, and tokenization”: This involves bringing traditional financial assets onto the blockchain. The team is gradually shifting its focus to this area, launching products such as iUSDe, USDtb, and Converge.
In the realm of speculation, the Ethena protocol focuses on deeply integrating USDe into both decentralized and centralized trading venues to ensure its close connection with trading activities.
In the DeFi ecosystem, this integration manifests in various forms: users can lend using their USDe holdings (for speculation or earning yields); trade the yields of sUSDe on platforms like Pendle; or use USDe as collateral for perpetual contracts and other trades on decentralized and centralized trading platforms. In this way, Ethena aims to establish its competitive moat, positioning itself as an asset closely linked to speculation and trading activities. In certain cases, USDe itself even becomes a trading asset, as seen in its application on Pendle.
In the field of settlement and asset tokenization, Ethena is vigorously expanding its product portfolio. In its initial years, Ethena clearly focused on the growth of its core product, USDe, achieving outstanding execution results. The protocol has experienced rapid growth: the supply of USDe reached a circulation of $6 billion in its first year, making it one of the fastest-growing dollar products and DeFi protocols in the crypto space. Since then, USDe has become the third-largest dollar product in the crypto and DeFi sectors, following Tether (USDT) and Circle (USDC).
Over the past year, Ethena's focus has gradually shifted towards bringing traditional financial assets onto the blockchain, concentrating on the settlement of stablecoins, digital dollars, and asset tokenization. Ethena's founder, Guy, stated, “The influx of institutional capital into the crypto space is the most important theme of this cycle and will be key to future development.” To successfully seize the opportunity of institutional capital inflow, the team has developed multiple products (including iUSDe, USDtb, and the most important Converge), which are designed not only to attract institutional capital and introduce tokenized assets but also to complement each other and create synergies.
Recently, the application scenarios of cryptocurrencies have undergone significant changes. While decentralized, trustless systems, permissionless access, and transparent markets and finance remain important, the settlement and efficiency improvements that cryptocurrencies bring to traditional financial infrastructure are increasingly gaining attention. Ethena's product expansion directly targets this trend, aiming to meet the efficiency improvement needs at the institutional level through stablecoins and asset tokenization.
Ethena
USDe
USDe is Ethena's core product, a synthetic dollar product based on tokenized basis trading. The rapid growth of USDe is attributed to its high embedded yield, allowing users to earn yields by staking USDe to receive sUSDe, and its extensive integration within DeFi protocols and centralized exchanges. The team has adopted an aggressive strategy to ensure that USDe is widely used across various trading venues and often becomes the highest-yielding dollar product.
Ethena co-founder Guy has repeatedly mentioned over the past few years that the essential difference between USDe and USDT and USDC lies in the way yields are distributed. USDT and USDC typically internalize yields (such as treasury rates) or only return them in specific venues (like USDC on Coinbase). Ethena has chosen a different competitive path—not to compete with USDT and USDC on circulation speed or liquidity, but to focus on yields, passing the entire yield from basis trading to stakers and USDe holders.
As of May 2025, the circulation of USDe has reached $5.3 billion, accounting for about 2% of the total market capitalization of stablecoins. Ethena's influence is particularly significant in the money market, yield products, and other CDP (collateralized debt position)-based stablecoins. USDe often plays an important role as a source of yield, trading tool, or collateral.
In this report, we refer to USDe as a dollar product or synthetic dollar product, but it is important to emphasize that its risk characteristics differ from traditional stablecoins (such as those based on treasury or short-term government bonds).
Ethena is particularly committed to providing users with a store of value or savings product, namely its synthetic dollar USDe. The team does not attempt to directly compete with USDT (and to a lesser extent USDC) to become the dominant player in the payment and settlement space. USDT has strong network effects and widespread distribution advantages in the Middle East, North Africa (MENA), Africa, and Asia. In contrast, Ethena offers a semi-complementary product—USDe—by sharing yields with users and attracting a user base seeking dollar-denominated product yields as a savings account (albeit with higher risks due to high yields). Meanwhile, the team has recently launched a treasury-backed stablecoin product, USDtb, as a complement to USDe rather than directly competing with USDT and USDC.
Unlike fiat-backed stablecoins, USDe is supported by highly volatile crypto assets and hedged through short positions in the derivatives market. For every USDe minted, the protocol holds an equivalent value of crypto assets (such as ETH, BTC, or liquid staking tokens) while simultaneously establishing an equivalent short position through perpetual contracts or futures. This self-hedging “long + short” combination (i.e., basis trading) allows the price fluctuations of crypto assets to offset each other: if the price of the underlying asset rises, the value of the short position decreases, and vice versa, thereby keeping the net asset portfolio value roughly stable at $1. With price risk neutralized, USDe can achieve 100% full collateralization (1:1 support) without the need for the large buffer capital required by traditional over-collateralized stablecoins.
To earn the yields generated by the Ethena mechanism, users need to stake USDe for sUSDe, which is a yield-bearing token. sUSDe can be viewed as a savings token: it accumulates protocol revenue (such as funding rates) over time, while the underlying USDe itself does not generate interest if held idly. Users can obtain sUSDe by staking USDe and enjoy the yields generated by the system. In 2024, sUSDe provided holders with an average annualized yield (APY) of about 19% by capturing yields from the crypto market.
USDe Minting Mechanism
The process of minting USDe involves converting assets into a hedging structure. For example, a whitelisted market maker can deposit $100 worth of USDC or USDT into Ethena and receive 100 USDe. In the background, Ethena uses these funds to purchase spot assets while opening an equivalent short perpetual contract position. This process is atomic and automated, allowing for immediate hedging upon creation of the asset. Aside from execution costs, Ethena does not charge any additional spreads or profits on the minting or redemption process.
All supporting assets are stored in secure off-chain accounts (provided by service providers such as Copper and Ceffu), rather than directly on exchanges, thereby minimizing counterparty risk. Because of this, when the Bybit exchange experienced a hack, Ethena was able to successfully withdraw positions, preventing damage to user collateral. The exchange is only temporarily authorized to control assets when margin is needed, while the off-chain settlement custodial solution ensures the security of the assets.
USDe Operation Mechanism and Yield Sources
Ethena's design centers around basis trading as the core source of yield, while layering additional yield channels.
Basis Trading
The core of USDe is basis trading. Historically, perpetual contract prices have typically been higher than spot prices, meaning that longs need to pay funding rates to shorts to maintain price balance. Ethena's USDe essentially tokenizes the concept of “Nakadollar” described by Arthur Hayes: by going long on the underlying crypto asset and shorting perpetual contracts, a synthetic dollar position is formed. Since the price fluctuations of longs and shorts offset each other, the value of the position remains roughly constant, but the shorts can earn periodic funding rate income from the perpetual contracts.
Additionally, if the underlying asset itself is a yield-bearing asset (for example, staked ETH can earn protocol rewards), these rewards will also accumulate. Overall, the collateral of USDe generates yields through the following two channels:
Funding rate payments from perpetual contracts: Shorts benefit from the funding rates paid by longs.
Protocol rewards from the underlying asset: Such as additional yields generated from staking ETH.
Perpetual Funding Rates
When market demand for longs in crypto assets prevails, shorts receive funding rates. The crypto market often exhibits a persistent bullish tendency; for instance, due to the deflationary nature of ETH and its staking yield attributes, ETH perpetual contracts tend to trade at an annualized premium (funding rate). By consistently maintaining short positions, Ethena can capture this portion of yield.
A common discussion point surrounding Ethena's yield strategy (especially basis trading) is its sustainability. From the funding rate data of ETH and BTC, the persistence of negative funding rates is relatively low: negative funding rates rarely last for long periods. For instance, the longest consecutive days of negative funding rates for BTC is only 8 days, while for ETH it is 13 days at most. On average, the negative funding period for BTC lasts only 1.6 days, while for ETH it is 2.2 days, indicating that the market's structural bullish tendency quickly rebounds.
It is noteworthy that the above data includes an outlier driven by perpetual market arbitrage following Ethereum's transition from proof-of-work (PoW) to proof-of-stake (PoS). The chart below shows the data after removing this outlier.
Histogram analysis further confirms the positively skewed distribution of funding rates: BTC's funding rate is negative only 10.5% of the time, while ETH is negative 12.5%. The distribution exhibits a clear right-skewed characteristic, with the average funding rates for BTC (7.27%) and ETH (7.62%) significantly higher than the median, indicating that occasionally occurring extremely high positive funding rates elevate the overall average yield. Notably, the distribution of funding rates shows that the most common range is robustly positive, with BTC and ETH's annualized funding rates mostly falling within the 5%-10% range.
Over the past few years, the funding rates in the BTC and ETH markets have undergone significant changes. The average funding rate in 2022 was relatively low (BTC: 1.69%, ETH: -1.92%, with ETH's negative value being due to anomalies related to the merge event, where funding rates briefly dropped to -276%). However, in 2023, funding rates significantly increased (BTC: 7.59%, ETH: 9.09%), peaking in 2024 (BTC: 11.12%, ETH: 12.68%).
Currently, Ethena's total value locked (TVL) is approaching $6 billion, occupying a considerable proportion of the short positions in the perpetual contract market. This brings a theoretical risk that the protocol's own hedging activities may compress funding rates over time. However, data shows that funding rates remain comfortably positive, far exceeding the threshold required to generate attractive yields when combined with other rewards. Even with Ethena's large scale, funding rates can stabilize at current levels, indicating that the market can accommodate the protocol's hedging demands without completely consuming the opportunities for basis trading.
Basic Yield Analysis: Staking and Lending
Ethena holds various forms of collateral assets. A portion of these (which is gradually decreasing) consists of staked ETH (and liquid staking tokens, such as stETH), which earn ETH staking rewards, providing basic yields for the collateral pool. Additionally, Ethena can hold stablecoins as collateral assets (for example, idle USDC/USDT in reserves) and deploy them into secure yield channels (such as lending markets). The inclusion of liquid stablecoins not only provides a buffer during market volatility but also generates additional yields for the protocol through investment yield channels. By dynamically allocating between crypto assets and stablecoins, Ethena can effectively manage risks while optimizing yields (for instance, increasing the proportion of stablecoin holdings to reduce risk during periods of low or negative funding rates).
Since the protocol's launch, Ethena's reliance on ETH staking yields has gradually decreased, closely related to changes in staking yield rates. Guy recently mentioned that when Ethena first launched, the staking yield for ETH was around 5%-6%, but over time, the yield has dropped below 3%. He believes that the current level of returns is insufficient to reasonably compensate for the inherent term and liquidity risks of staking. This perspective has driven significant adjustments in the protocol's collateral assets—Ethena has reduced its initial support of 80% liquid staking tokens (LSTs) to now less than 6%.
The staking yield for ETH briefly exceeded 13% at the beginning of 2023 but then fell sharply. Starting from about 4.3% when Ethereum transitioned to proof-of-stake (PoS) in September 2022, the yield averaged 3.9% at the beginning of 2024 and further declined to the current level of approximately 3.1%.
The composition of Ethena's collateral assets reflects the direction of its strategic adjustments. From December 2024 to June 2025, the allocation of staked ETH decreased from 6.4% to 5.4%, while the proportion of liquid cash expanded to nearly 50% of total collateral assets. This change clearly indicates that Ethena is placing greater emphasis on a robust collateral strategy and capital preservation.
The logic behind this adjustment is based on the trade-off between risk and return. At the current staking yield of about 3%, stakers face multiple risks: term risk during the un-staking period, smart contract risk in liquid staking protocols, and punitive slashing risks in validator operations. When these risks are compounded, the returns may even fall below traditional risk-free rates. Moreover, Ethena's core perpetual contract strategy itself is already capable of generating substantial yields without the need to increase staking exposure, which not only complicates operations but also requires more monitoring and risk analysis without delivering significant returns.
In addition to the funding rate income from perpetual contracts and staking rewards, Ethena also enhances the returns or resilience of USDe through the following supplementary yield strategies:
- Protocol Revenue Sharing
Ethena charges a fee of 10 basis points (0.1%) for minting USDe, while redemption is fee-free. The protocol's main source of income comes from the portion of yields not distributed to users. Only staked USDe (sUSDe) can earn yields. This reserve can be used to strengthen collateral assets or fund projects related to the protocol. In practice, this provides Ethena with a sustainable source of income to support operations or ensure the anchoring stability of USDe. For users, this also creates an incentive for staking. As of May 2024, Ethena's reserve fund has significantly increased, with the protocol's monthly income reaching millions of dollars after distributing sUSDe yields.
- Liquidation and Trading Fees
The protocol may occasionally realize gains when rebalancing collateral assets. If the prices of supporting assets change and positions are re-hedged, small arbitrage gains or losses may occur (Ethena may try to minimize this, but any structural gains will belong to the system).
- External Yield Integration
Ethena is exploring integration with DeFi platforms to further generate yields based on USDe. For example, depositing USDe into lending markets (when not needed for hedging) or liquidity pools can earn certain fees. Ethena has mentioned that even the portion of "liquid stablecoins" as supporting assets may receive rewards based on their storage location. This indicates that Ethena actively manages idle collateral assets, such as depositing some USDT into yield accounts when funding rates are low, or earning reserve yields through protocols like Aave without affecting anchoring stability. The use of each external protocol requires approval from the governance body—namely, the risk committee.
- Market Volatility
Although not a continuous occurrence, Ethena can also benefit from market volatility. For instance, earlier this year, a chain liquidation occurred in the Ethereum market, causing prices to drop below $2,200. As the short perpetual contract positions held by Ethena decoupled from spot prices during the price decline, the protocol profited from approximately 5%-7% in profit and loss (PnL), even though its positions were theoretically delta neutral. This profit arose because the chain liquidation caused the short perpetual contract positions to become disconnected from spot prices during the price decline, creating additional profit opportunities.
Ethena's Growth Path
Ethena's growth characteristics lie in its rapid integration into DeFi protocols and centralized finance (CeFi) platforms, driving demand for USDe and expanding its application scenarios. Below is an overview of its key growth paths:
Integration with Centralized Exchanges and Trading Functions
One of Ethena's core strategies is to integrate USDe into perpetual contract exchanges. This move leverages the widespread demand for stablecoins as collateral assets on trading platforms. In 2024, Ethena announced a partnership with Bybit to support USDe. Bybit not only launched trading pairs for USDe but also allowed traders to use USDe as margin for perpetual contracts and earn yields through USDe. Traditionally, traders typically use USDT or USDC as margin, which can generate yields themselves. By allowing users to utilize USDe, Bybit's users can offset their funding costs with the yields generated from USDe. Before the hacking incident, the USDe holdings on Bybit exceeded $700 million, demonstrating the market's high acceptance.
At the beginning of 2025, Ethena announced plans to integrate USDe into Deribit (a leading crypto options exchange) and recently announced a partnership with Hyperliquid. Additionally, USDe has also been integrated into Ethereal, a decentralized exchange (DEX) for perpetual contracts developed natively by Converge.
Ethena is striving to establish USDe as a standardized margin asset alongside USDT and USDC. If traders transfer their collateral assets to USDe due to its yield attributes, each integration with exchanges could potentially bring in significant capital inflows. Considering that the total amount of collateral assets used by exchanges across the industry reaches hundreds of billions of dollars, Ethena is tapping into a highly promising market.
For exchanges, supporting USDe can attract more liquidity, as traders can earn yields on their collateral assets. Additionally, exchanges typically have existing partnerships with the Ethena protocol, as the short positions in Ethena's basis trading are executed on these exchanges.
For Ethena, this collaboration creates a virtuous cycle: the more USDe on the exchange, the more funding yields captured, which in turn increases the annual percentage yield (APY) of sUSDe, attracting more users to mint USDe.
Integration with Lending Platforms
For a dollar product that generates yields, the lending market and lending platforms are a natural fit. Protocols like Aave, Morpho, and Euler allow users to borrow stablecoins and other dollar assets. After integrating USDe into these protocols, users can not only earn lending interest by lending USDe but also earn inherent rewards from sUSDe. Furthermore, users can borrow USDe against collateral, which is attractive for borrowers since the borrowed USDe can be staked to partially offset interest expenses and potentially capture yield spread profits.
At the beginning of 2024, Spark Protocol, a lending sub-DAO under Sky (formerly MakerDAO), began collaborating with Ethena. On March 29, 2024, Spark used Maker's Direct Deposit Module (DDM) to transfer $100 million of newly minted DAI into two Morpho Blue markets (DAI/USDe and DAI/sUSDe). This DAI was lent against over-collateralized USDe positions, providing credit to traders while generating stable fee income for Maker.
According to governance disclosure documents released in February 2025, if market conditions allow, Spark may expand its directly held USDe and sUSDe or related credit exposure to $1.1 billion. sUSDS (formerly known as sDAI) currently occupies a significant portion of Ethena's total value locked (TVL), reaching $1.4 billion.
Additionally, Ethena has deep integration with Pendle (which will be discussed further below). Pendle's principal tokens, particularly PT-SUSDE and PT-EUSDE, have been widely integrated into protocols like Morpho, Euler, and Aave, further expanding the application scenarios for USDe.
Pendle and Yield Derivatives
Pendle Finance is a protocol focused on yield tokenization, and its integration with Ethena is considered one of the most important collaborations. Pendle allows users to split yield-bearing assets into Principal Tokens (PT) and Yield Tokens (YT) and trade them. USDe/sUSDe has a natural advantage in yield tokenization: sUSDe itself is a yield-bearing asset (profiting from basis yields). The integration of the two has facilitated the creation of the SY (Standardized Yield) USDe market, where users can deposit USDe and receive SY tokens that accumulate yields, or trade future yields through YT and PT.
This integration has resulted in a win-win growth scenario. The Pendle platform attracts USDe holders by offering fixed income or leveraged yield opportunities. For example, in mid-2024, users could deposit USDe into a Pendle pool that would mature in July 2025, locking in an annual percentage yield (APY) of about 32%, effectively fixing the high funding rate at that time. Other users could speculate or amplify yields by purchasing YT (for instance, YT-sUSDe offered a higher effective APY but came with higher risks). This flexibility led to over 17% of the USDe supply flowing into Pendle by July 2024. Pendle's trading volume and total value locked (TVL) also surged due to the popularity of sUSDe yields, driving Pendle's overall development.
Ethena further promoted this integration through a series of incentive activities, such as the "Sats Campaign" reward program. Users could earn Bitcoin Sats points by holding or using USDe, with the highest reward multipliers (e.g., 20x) for depositing USDe into Pendle's YT/LP pool. This strategy attracted more USDe into Pendle, creating a positive feedback loop: high yields attracted more demand for USDe, which in turn increased Pendle's usage, keeping yields competitive.
By rewarding the use of external protocols, Ethena successfully guided the growth of liquidity and utility without having to build these services itself.
Risk Comparison: USDe, USDC, and USDT
Ethena's USDe fundamentally differs from traditional fiat-backed stablecoins (like USDC and USDT) in its construction and risk model.
Collateral Assets and Transparency
USDe is backed by crypto asset collateral and hedging, while USDC and USDT are backed by fiat currency. The collateral assets for USDe (such as BTC, ETH, etc.) are stored on-chain or in crypto custody, while corresponding liabilities (short positions) are held on centralized derivatives exchanges. In contrast, the collateral assets for USDC and USDT are cash or bonds (such as government bonds or short-term government debt instruments), stored in off-chain bank or trust accounts.
As a result, the collateral backing USDe has on-chain transparency (partially involving off-chain exchanges) and can include crypto assets, while USDC and USDT rely on off-chain audits (such as USDT's audit reports).
USDe's transparency is relatively higher, allowing users to monitor the value of their collateral assets on-chain (for example, by viewing Ethena's asset holdings through public custody addresses and checking the scale of short positions via exchange APIs). Additionally, Ethena publishes monthly custody proofs of USDe's collateral assets, showing assets held in off-chain custody. USDC also has monthly audits from auditing firms, while USDT releases reports quarterly.
In terms of decentralization, USDe's architecture is more distributed, involving multiple exchanges, custodians, and smart contracts, thus making trust more decentralized; whereas USDC and USDT are completely centralized (controlled by a single entity). This means USDe cannot be unilaterally audited or frozen, which is a significant advantage in terms of censorship resistance.
Counterparty and Exchange Risks
USDC and USDT face risks from the traditional financial system, such as bank failures (e.g., the 2023 Silicon Valley Bank incident causing USDC to depeg to $0.88), regulatory freezes (e.g., OFAC blacklisting addresses, allowing Circle or Tether to freeze tokens), and insufficient transparency (especially USDT, although Tether has improved in disclosure). In contrast, USDe's risks are more aligned with the crypto space: it relies on the counterparties of exchanges. If a major exchange holding Ethena's short positions goes bankrupt, Ethena may face losses or difficulties in re-hedging.
This risk was partially revealed during the Bybit hack incident (equivalent to a stress test): Bybit experienced asset losses, but since Ethena's assets were held off-chain, only the unrealized profit and loss (PnL) of its derivatives were affected, while Ethena's reserves were sufficient to cover the losses. At that time, Ethena's risk exposure on Bybit was about $30 million, but its reserve fund completely offset this risk and quickly reduced the exposure to zero after the incident. This indicates that although USDe's model carries exchange risks, measures such as distributed custody and reserve buffers effectively mitigate these risks. However, if a larger exchange (or multiple exchanges) were to suddenly go bankrupt, USDe could face collateral shortfalls until the collateral is reclaimed or reserves fill the gap.
Stability Mechanism
The stability of USDC and USDT relies on a simple redeemability promise: when the price drops, arbitrageurs can buy tokens at a low price and redeem them for dollars from the issuer at a 1:1 ratio (provided the issuer fulfills the redemption promise). In contrast, USDe's stability relies on market mechanisms and the arbitrage of its hedging model. When the price of USDe falls below $1, arbitrageurs can purchase USDe and redeem it through Ethena's process: after burning USDe, the corresponding collateral assets are returned (if hedged properly, the collateral asset value is $1). However, it is important to note that only authorized parties can redeem directly; in practice, these authorized parties (such as market makers) will redeem if it is profitable, thus maintaining price stability.
Additionally, Ethena's system may utilize reserve funds to stabilize prices when necessary (although a clear reserve-backed stabilization mechanism has not been publicly defined, reserves are primarily used to cover funding gaps). So far, USDe has maintained a relatively tight peg, supported by its deep liquidity pools.
Scale and Support Limitations
USDC and USDT can theoretically expand infinitely with increased fiat inflows (reaching hundreds of billions of dollars, limited by bank capacity and market trust). In contrast, the growth of USDe is tied to the capacity of the derivatives market and the availability of crypto collateral. There are practical limitations: for example, to mint large-scale USDe, Ethena needs to execute an equivalent scale of short perpetual contracts. The open interest (OI) limits of exchanges may become a bottleneck for growth. As of July 2025, Ethena has captured a significant proportion of OI on some platforms (e.g., about 4.3% of BTC perpetual contract OI and about 4.9% of ETH perpetual contract OI). If the scale of USDe were to double, it could put pressure on these markets or widen spreads.
To address this issue, Ethena mitigates risks by diversifying trading across multiple exchanges (such as Binance, Bybit, OKX, Bitget, etc.) and may drive the expansion of USDT-denominated perpetual contract markets. In contrast, the growth limitations of USDT may depend on how many U.S. Treasury bonds Tether can purchase or the stability of its banking relationships, but these limitations are relatively high (Tether has successfully grown to over $80 billion without major issues).
Volatility, Funding Rates, and Market Risks
USDe is exposed to conditions in the derivatives market. If there is a prolonged negative funding rate (i.e., shorts paying longs), the value of Ethena's positions will continue to decline. Ethena needs to cover these funding costs through its own capital or collateral, resulting in a form of "capital outflow." The protocol can handle short-term negative funding rates (through reserve funds), but if there is a fundamental change in market conditions (for example, a massive demand for shorting cryptocurrencies over several months), USDe may face a yield deficit, and mismanagement could even jeopardize the collateral.
The USDtb launched by Ethena aims to address this issue by shifting to positively yielding assets in such scenarios. Traditional stablecoins, on the other hand, are not affected by fluctuations in market interest rates, as their value solely relies on the issuer's creditworthiness.
During extreme volatility in the crypto market, the anchoring mechanism of USDe may theoretically be more fragile. If crypto prices double overnight, Ethena's short positions will incur losses, which may lag slightly behind the yields of the collateral, or vice versa, leading to a slight imbalance (although designed to be 1:1, slippage in execution may come into play). If there is insufficient liquidity on exchanges, rebalancing large positions may incur costs, potentially leading to a temporary depeg until the arbitrage mechanism kicks in. However, Ethena's daily profit and loss settlement and collateral adjustments minimize this risk under normal conditions.
USDT and USDC may also depeg due to panic selling (for example, USDC dropped to $0.88 during a bank failure panic), but if reserves are sufficient, arbitrage typically restores the peg. The key difference lies in trust versus algorithm. USDC and USDT rely entirely on trust in the issuer; whereas USDe relies on algorithmic hedging and trust in Ethena's operations. If Tether's reserves are called into question (for example, due to a major audit failure), USDT may significantly depeg. In contrast, USDe's depeg is more likely to stem from technical failures (such as smart contract vulnerabilities or chain defaults among exchanges) or extreme reversals in funding rates.
Regulation and Institutional Adoption
From the perspective of institutional risk, USDC and USDT are widely understood and have clear legal frameworks (for example, USDC is regulated as a stored value instrument, etc.). In contrast, USDe may be viewed as riskier or more complex, potentially even straddling a regulatory gray area.
Institutions may be concerned about the operational risks of USDe, such as how to explain a short position supporting a stablecoin to their risk committees. To alleviate these concerns, Ethena may position USDtb as an institutional product, while USDe is more suited for crypto-native funds, proprietary trading teams, and DeFi users.
Over time, if USDe can prove its stability and yield-generating capability, even institutions (such as hedge funds) may use it to generate returns (in fact, early investors in USDe achieved nearly 20% annualized returns in a low-interest-rate environment, which is highly attractive by any standard).
USDC and USDT are facing regulatory scrutiny (for example, the New York Attorney General's investigation into Tether and potential stablecoin legislation).
The introduction of derivatives with USDe may lead regulators to view it as a form of "synthetic prime money market fund," thus attracting attention. If regulators believe it poses systemic risk or constitutes an unregistered product, Ethena may face pressure, especially as its scale expands.
However, Ethena's global and decentralized characteristics may provide some buffer (its foundation may be located in offshore regions). On the other hand, for regulators concerned about stablecoin reserves, USDe's complete transparency and independence from banks may make it more attractive—USDe faces crypto market risks rather than bank risks. This is an area that has yet to be fully explored.
For institutions and protocols, these differences mean that USDe currently serves as a complement to USDC/USDT rather than a complete substitute. For example, protocols like Maker have already found a role for USDe (earning yields through DAI reserves) but have not completely abandoned USDC as a stable support. However, if USDe and USDtb continue to grow in historical performance and liquidity, it is conceivable that protocols like Maker or Frax may use USDtb as reserves (replacing USDC), or exchanges may prefer to use USDe as collateral. Institutions may consider USDtb as a cash equivalent on their balance sheets while using USDe for yield-generating strategies.
To attract institutional capital inflows and capture more market share in the settlement markets for stablecoins, digital dollars, and asset tokenization, Ethena has decided to develop a series of new products. These include two new stablecoin products, iUSDe and USDtb, specifically targeting institutional funds and capital flows.
USDtb and iUSDe
iUSDe
iUSDe is a compliant version of the core sUSDe product, featuring basic permission controls and KYC (Know Your Customer) restrictions. This design allows traditional financial institutions and entities to interact with the product, as it meets anti-money laundering (AML) and KYC compliance requirements. While this product may not achieve the scale of USDe, it holds unique value as an important tool tailored for institutional participants.
USDtb
USDtb is the second stablecoin product launched by Ethena, fully backed by tokenized U.S. Treasury assets, representing a "digital dollar." Unlike the basis trading structure of USDe, USDtb is based on a fiat-backed stablecoin model. Each USDtb token represents a claim on dollars invested in an institutional-grade U.S. Treasury fund, operating similarly to USDC and USDT.
In the launch of USDtb, Ethena partnered with BlackRock's USD Institutional Liquidity Fund ("BUIDL") to use it as the primary supporting asset. Through BUIDL, USDtb holders can indirectly access U.S. Treasuries and other short-term financial instruments, similar to how USDC holders rely on Circle's Treasury and cash reserves.
From a user experience perspective, USDtb functions similarly to traditional stablecoins:
Maintains a 1:1 peg to the dollar
Can be transferred on blockchain networks (initially Ethereum, with future potential for Ethena's Converge chain)
Usable for payments, trading, or lending, similar to USDC/USDT
The design of USDtb fully leverages the growing institutional recognition of stablecoin infrastructure.
In a report dated April 30, 2025, Visa expressed its views on stablecoins:
Modernizing Settlement Infrastructure: From Visa's perspective, we believe stablecoins can enhance the efficiency and practicality of backend financial and capital flow infrastructure. While the "frontend" of capital flows has seen significant digitization and modernization over the past decade, the "backend" of global settlement and capital flow infrastructure still needs to catch up.
In traditional cross-border payment and settlement systems, the processes are complex and multi-step, requiring coordination among multiple intermediaries:
Banks deduct funds from customer accounts and send SWIFT messages containing payment details and compliance checks.
Messages are relayed through one or more correspondent banks, as most banks do not maintain accounts in all currencies. Each correspondent bank moves funds between nostro/vostro accounts, updates ledgers, and charges fees. As banks have reduced such partnerships, reliance on correspondent banks has decreased.
Within each currency area, banks settle daily accumulated balances through the central bank's real-time gross settlement (RTGS) system or delayed net settlement system. These systems operate only during specific time periods, meaning payments arriving outside business hours must wait for the system to reopen, extending end-to-end settlement times from a few minutes to potentially two days.
In fund processing, participating intermediaries must maintain idle funds or ensure intraday liquidity, increasing costs and risks.
Finally, the receiving bank records the transaction and releases the funds to the payee, completing the entire transfer process.
Stablecoins can significantly reduce the number of intermediaries required in payments and settlements. In traditional cross-border transactions, lengthy transaction chains are often involved, with each additional step increasing costs and complexity while introducing settlement risks. A stablecoin-based system can simplify cross-border transaction processes by reducing the need to maintain numerous correspondent bank relationships.
The stablecoin system reduces settlement risks by minimizing intermediary steps while lowering pre-funding and intraday credit demands, limiting opportunities for rent-seeking behavior, thus significantly reducing costs. Additionally, with the widespread adoption of stablecoins, network effects and economies of scale can further lower costs, while standardized data formats make integration with other systems more efficient and economical.
Another advantage of blockchain technology is its ability to operate around the clock, enabling near real-time end-to-end payment settlements. In contrast, the current traditional correspondent bank payment paths can take anywhere from under five minutes to over two days (depending on the banking systems of the relevant countries), while stablecoins can completely eliminate these delays, achieving instant payment processes.
Beyond improvements in settlement and efficiency, stablecoins play a crucial role in countries with poor currency management, such as Argentina, Lebanon, and Nigeria. In these countries, maintaining purchasing power is a primary concern. By converting local currency into stablecoins pegged to the dollar, instant "dollarization" can be achieved. Stablecoins inherit the relative stability and credibility of the dollar, providing an attractive alternative for countries that have lost trust in their local currencies.
In these regions, exchanging physical dollars is often difficult and costly, and withdrawing dollars from domestic banking systems poses additional challenges. Many bank customers holding dollars frequently encounter arbitrary withdrawal restrictions. Stablecoins allow users to manage dollar assets through secure hardware wallets, providing continuous accessibility and security for their funds.
Moreover, traditional dollar-based services (such as banks or remittance service providers) are often subject to regulatory, scrutiny, and political interference. In contrast, stablecoins, especially when traded on peer-to-peer or decentralized platforms, can offer higher privacy and censorship resistance.
Stablecoins also provide users with yield opportunities. While security remains the primary concern for users, individuals can choose yield options with varying risk levels based on their risk tolerance. Yields on stablecoins can be achieved through integration with the broader cryptocurrency ecosystem, the supporting mechanisms behind them, or a combination of both. For example, in an inflationary environment, users can deposit USDe into decentralized lending protocols to earn an annual percentage yield (APY) of 10%-15%, transforming their stablecoin assets into interest-bearing assets. This capability is particularly important when local banks offer near-zero or negative real interest rates.
It is important to note that the applications of stablecoins extend far beyond the aforementioned points, which only focus on what we believe are the two main current uses. We will explore other use cases in more detail in our upcoming stablecoin report.
It is worth mentioning that Ethena focuses on providing users with a value storage or savings product, represented by its synthetic dollar USDe. The team has not attempted to directly compete with USDT (Tether) and has also made fewer attempts to dominate the payment and settlement space against USDC. USDT has strong network effects and widespread distribution, particularly dominating in the Middle East and North Africa (MENA), Africa, and Asia. In contrast, Ethena offers a semi-complementary product—sUSDe. This product acts as a savings account by sharing yields with users (albeit with higher risks due to high returns), thereby attracting those looking to earn yields on dollar-denominated products and gradually expanding its market share.
Recently, Ethena has begun offering a stablecoin product backed by government bonds, USDtb, aimed at complementing USDe rather than directly competing with USDT and USDC.
USDtb is a stablecoin fully backed by 100% liquid, low-risk assets, primarily consisting of shares in BlackRock's money market fund, which holds short-term U.S. government debt. This design effectively reduces bank credit risk, shifting the focus to sovereign credit risk, which is relatively considered risk-free. Additionally, this means that the reserves of USDtb can naturally generate yields (money market yields), currently yielding an annual percentage rate (APR) of about 4.5% due to Treasury rates. The proof of reserves for USDtb is updated monthly, and its reserve assets are custodied by Zodia, Komainu, and Copper.
To facilitate quick redemptions and on-chain exchanges, Ethena also maintains part of USDtb's reserves in stablecoin (such as USDC) form. This arrangement allows USDtb to handle large withdrawal or transfer requests without the need to immediately redeem BUIDL shares.
Complementary Stablecoins
USDtb and USDe are fundamentally different products. Unlike sUSDe, which focuses on building a moat through yields and returns, USDtb's primary goal is to attract institutional capital. Many institutions, treasuries, and investors may be unfamiliar with products like USDe that rely on crypto derivatives or may feel uneasy about a model that is entirely dependent on the crypto ecosystem. USDtb, on the other hand, provides these users with a more familiar crypto dollar, backed by U.S. government debt and possessing a strong compliance foundation (Securitize is a regulated digital securities platform). By offering products that meet institutional standards (including KYC, full collateralization, and yields generated from liquid, low-risk Treasuries), Ethena can bring significant new capital into its ecosystem.
Through USDtb and USDe, Ethena achieves complementarity in its stablecoin products. USDe offers higher risk and higher return options, while USDtb focuses on minimal risk and base yields (around 4.5%). This combination allows Ethena to cater to users with different preferences and market conditions. For example, investors can hold USDtb as a stable reserve (earning about 4.5% yield) while utilizing USDe for more aggressive yield farming. This strategy not only positions Ethena as a one-stop issuer of stablecoins but also reduces reliance on third-party stablecoins. Furthermore, this dual-product model can adapt to various market environments: when funding costs are low but interest rates are high, demand for USDtb may increase; conversely, USDe presents opportunities in other scenarios.
iUSDe represents the other end of the stablecoin product spectrum. While some institutions may be interested in tokenized base yield products, they may be unable to directly access such products due to KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance risks.
There are several reasons why institutions cannot use permissionless decentralized finance (DeFi) tools, including but not limited to:
Regulatory and Compliance Risks: Institutions cannot transact with counterparties of unknown identity.
Counterparty Transparency: Institutions need to know the identity of borrowing parties, especially in cases involving sanctioned entities.
Legal Requirements: Institutions have legal obligations to comply with AML and KYC regulations.
Internal Policy Restrictions: Internal policies of large financial institutions require identification of counterparties, and risk management departments need complete transparency regarding counterparty identities.
To address these compliance challenges, iUSDe provides a solution. While USDtb offers a completely different risk and return profile as a stablecoin, iUSDe ensures that institutional funds and investors can enjoy the same yield and risk characteristics as USDe while meeting regulatory requirements. Through iUSDe, Ethena successfully fills the gap for institutional investors between compliance and yield.
Converge
Ethena Labs is collaborating with Securitize to develop a new chain called Converge, aimed at introducing tokenized real-world assets (RWAs), traditional financial markets, and their related instruments.
Similar to the rise of stablecoins, over the past year, tokenization technology has gradually been adopted by traditional financial institutions due to its numerous benefits for real-world financial instruments and markets. These benefits include enhanced transparency, reduced transaction and information costs, accelerated processing speeds, and improved risk management capabilities.
Programmability and Composability
Traditional financial transactions often involve multiple intermediaries, each maintaining independent records at various stages of the transaction (including issuance, trading, matching, settlement, custody, and corporate actions). Tokenization fundamentally changes this structure through the introduction of smart contracts, allowing all these steps to be automated without relying on dispersed intermediaries.
The use of shared ledgers creates opportunities to integrate traditionally isolated financial functions. For example, foreign exchange payment systems, securities custody platforms, and collateral management platforms can be integrated into a unified framework. This integration not only reduces the cost of value transfer but also makes previously expensive or difficult transactions easier to settle.
Additionally, tokenization enhances the composability of finance through conditional trading. This mechanism allows transactions to be combined and executed automatically under complex conditions, creating more sophisticated financial instruments and workflows.
The automation capabilities of tokenization can also significantly optimize asset servicing. For instance, it can simplify corporate actions (such as dividend and interest payments) and enhance the efficiency of shareholder voting processes.
Transparency and Auditing
Current cross-border payment systems rely on a series of correspondent banks, each maintaining independent ledgers and communicating only through periodic confirmation messages. This model requires cumbersome reconciliation processes, as each institution must align its records.
In contrast, tokenization platforms utilize shared ledgers, maintaining a single, continuously synchronized record visible to all relevant participants. This shared "trusted source" provides real-time visibility, eliminating the need for banks to coordinate or perform end-of-day reconciliations between independent systems. Furthermore, repetitive manual processes (such as conducting AML/KYC screenings at multiple stages of the transaction chain) can be completed or entirely eliminated through smart contract logic. These improvements not only reduce operational costs but also significantly accelerate the efficiency of straight-through processing.
Standardization and Process Optimization
Asset issuance processes often become expensive and time-consuming due to the involvement of numerous participants and reliance on manual operations. Tokenization addresses these inefficiencies through the standardization of asset issuance processes and the reduction of the number of intermediaries, thereby lowering costs and decreasing barriers to entry in capital markets.
These improvements can facilitate the issuance of new assets and enable the sharing or fractional ownership of existing assets, including those with low liquidity in traditional markets. This expanded accessibility may attract new investor demand. Where legally permissible, tokenization can even allow participants to issue assets directly or negotiate contract terms for specific tokens without relying on traditional intermediaries.
Tokenization also supports atomic settlement for multi-step transactions. For example, when purchasing bond tokens with stablecoins on the blockchain, both parties achieve synchronized delivery through smart contracts: the buyer submits cash tokens, and the seller submits bond tokens, with the smart contract releasing both simultaneously if both parties have sufficient assets. If either party lacks sufficient assets, the transaction will not occur, completely eliminating principal risk. In contrast, traditional off-chain transactions typically process the two steps of a transaction through independent systems, often completing them at different times and requiring the involvement of clearing brokers, central counterparties, custodians, and banks, with settlement times often extending to T+2.
Differentiation Across Asset Classes
The advantages of tokenization exhibit significant variation across different asset classes. For illiquid and non-standardized assets, tokenization has the highest potential for efficiency improvements. These assets include syndicated loans and private credit in mid-market segments, which typically involve manual onboarding processes, customized covenant terms, and lack centralized market infrastructure. Equity shares in commercial real estate also fall into this category, as they are usually illiquid and primarily traded bilaterally.
In contrast, highly liquid and standardized assets, such as U.S. Treasuries, large-cap stocks, and exchange-traded funds (ETFs), have limited potential for efficiency improvements due to existing robust infrastructure. However, even for these assets, tokenization can still benefit from enhanced features, such as trading and settlement outside local market hours, atomic settlement mechanisms, improved composability, programmable lifecycle events, unified record-keeping, and opportunities for fractional ownership.
Ethena is developing a new chain called Converge, focusing on introducing tokenized real-world assets (RWAs) and connecting them with decentralized finance (DeFi) and cryptocurrencies (which is also the origin of the name "Converge"). Although tokenization remains an early-stage field, its expansion potential may grow exponentially. Currently, many public and private chains are striving to attract tokenized assets to their networks. Some chains offer KYC (Know Your Customer), AML (Anti-Money Laundering), and complete control over the entire tech stack (such as Avalanche Subnets, L2s, and other institutional chains); others focus on composability, thriving DeFi ecosystems, and close ties to cryptocurrency issuance and activities (such as Solana, Ethereum, etc.). As discussed later in the report, Converge aims to provide institutions looking to introduce assets with both control and composability.
Technical Design and Performance Specifications
Converge is envisioned as a high-throughput, low-latency blockchain compatible with the Ethereum Virtual Machine (EVM). The chain will achieve a block time of 100 milliseconds at launch, with plans to reduce block time to 50 milliseconds by Q4 2025. Its goal is to achieve at least 1 gigagas of throughput, processing approximately 1 billion gas units per second. In comparison, Ethereum currently processes about 15 million gas per block (around 100 million gas per minute).
Architectural Design
Converge is built on the Arbitrum Orbit technology stack and uses Celestia as the data availability layer. Its transaction execution and ordering are handled by an optimized Arbitrum-based sorter (Conduit G2). Converge operates on the Arbitrum Nitro technology stack (which provides fraud-proof security and EVM compatibility) but employs a custom sorter and configuration optimized for high throughput.
In terms of data availability, Converge initially publishes data to Celestia to achieve high-capacity data publishing at low cost. Celestia's architecture supports ultra-large data blocks (its recent testnet demonstrated data blocks of 128 MB and a throughput of about 21 MB/s, with a future roadmap for 1 GB data blocks). Through Celestia, Converge can parallel publish a large amount of transaction data without being constrained by Ethereum's current data throughput limitations.
Transaction ordering in Converge is managed by the Conduit G2 sorter. This is a high-performance sorter provided by Arbitrum, designed for quickly collecting transactions, executing them, and proposing blocks. The target block interval is approximately 100 milliseconds, meaning an average of 10 new blocks are generated per second (sometimes referred to as mini-blocks or lightning blocks). Converge plans to further reduce block time to below 50 milliseconds through optimizations such as introducing a continuous mini-block stream and improved RPC processing, aiming for this by Q4 2025.
Converge Validator Network (CVN) and Security Mechanisms
A key component of Converge is the Converge Validator Network (CVN), a dedicated validator layer. The CVN is a collection of permissioned validators endowed with functions similar to a "security committee," possessing a degree of autonomy. In emergencies, the validator set can take intervention measures (such as pausing chain operations, rolling back chain state in the event of significant vulnerabilities or errors, etc.). Unlike traditional validator sets that are solely responsible for block production or ordering, the CVN's responsibility is to ensure the economic integrity of the network and the security of user funds.
For example, the CVN can restrict or block malicious cross-chain messages coming through cross-chain bridges to prevent bridge-based attacks. Additionally, it can trigger protocol-level circuit breakers (pausing or stopping the operation of certain contracts or the entire chain) to respond to precursory oracle manipulations, critical smart contract vulnerabilities, or other economic anomalies that could lead to fund losses. In extreme cases, the CVN even has the authority to question the finality of the chain or coordinate a network pause/fork to protect user interests.
These powers are designed as a last resort, aimed at providing security assurances for institutional users (who typically have a high demand for risk mitigation) without fundamentally undermining the chain's decentralization or activity. This mechanism provides users with a safety net, ensuring fund security while still preserving the core values of blockchain.
Execution Mechanism
Converge employs a multi-threaded execution pipeline that fully utilizes the performance of multi-core CPUs, allowing for parallel processing of transactions whenever possible. Unlike traditional single-threaded EVMs, this design allows independent transactions to execute simultaneously while strictly ensuring the determinism of results.
Converge does not adopt the traditional model of generating large blocks at long intervals; instead, the sorter generates continuous small "lightning blocks" (micro-blocks) in real-time based on transaction flow. Validator nodes can progressively execute and verify these micro-blocks without waiting for the generation of a complete block. This approach significantly reduces propagation latency in the network, allowing the system to remain highly responsive even under high load. Block production becomes more continuous, effectively smoothing transaction peaks and shortening the time for new transactions to reach validators.
To address the rapid state growth brought about by high TPS (transactions per second), Converge uses a path-based flattened state storage model, supported by high-performance databases. This design enhances the read and write efficiency of contract states, with the storage engine supporting concurrent read and write operations, allowing multiple parts of the state tree to be accessed or updated in parallel without conflicts. Additionally, the engine features online state pruning capabilities, allowing for the discarding of old states as needed. These features are crucial for achieving a chain with ten times the throughput of existing networks, preventing the state database from becoming a performance bottleneck or expanding to uncontrollable scales.
At its core, Converge is a permissionless chain: anyone can bridge assets onto the chain, and any developer can freely deploy smart contracts. However, it supports a diverse ecosystem, where some applications may implement their own permission controls at the application layer (especially for applications involving regulated assets). Converge is expected to host two parallel types of applications:
Fully permissionless protocols;
Regulated or permissioned applications for traditional financial scenarios.
The key point is that these two types of applications can interact with each other. For example, a permissioned RWA (real-world asset) platform can benefit from the on-chain liquidity and composability of DeFi primitives (e.g., a bond token can be used as collateral in a DeFi lending pool), as long as these interactions comply with necessary regulatory rules. The design of Converge does not enforce any global permission controls; the decision-making power regarding access control is entirely left to application developers or asset issuers at the smart contract level.
Initial Ecosystem
Horizon - Aave
Horizon is a new institutional-grade lending market launched by Aave Labs, serving as a permissioned version of the Aave protocol specifically designed for real-world assets (RWAs). Horizon extends Aave's money market architecture, enabling institutions to borrow stablecoins against tokenized traditional assets. The first product focuses on tokenized money market fund shares (such as tokenized U.S. Treasury fund shares) as collateral, providing qualified investors with opportunities to unlock liquidity from low-risk yield assets.
The underlying technology of Horizon initially utilizes Aave V3 smart contracts (with plans to upgrade to Aave V4 in the future) and is deployed in a standalone environment customized for institutional needs. The protocol retains the core designs of over-collateralized loans and automated risk parameters while adding a compliance layer for restricted assets. Horizon's design draws on the experience of Aave Arc (Aave's early permissioned pool framework) but does not impose restrictions on the entire market; instead, it implements permission controls at the token level. In practice, only whitelisted institutional participants can hold RWA collateral tokens, while the protocol's stablecoin liquidity pool remains open and decentralized.
Horizon was officially launched in March 2025 through Aave governance proposals and Temp Check voting. Its revenue will be shared with the Aave DAO (50% of the first year's profits) and overseen by Aave's governance system. The remaining revenue will belong to the Labs team, a distribution method that has sparked some controversy (beyond the scope of this discussion).
Unlike Aave's focus on crypto-native collateral, Horizon introduces traditional financial instruments (starting with tokenized money market funds) into Aave's lending model. The protocol allows users and institutions with a portfolio of Treasuries and high-quality debt assets to tokenize these assets and use them as collateral to borrow stablecoins on-chain. This approach is similar to repurchase agreements or secured credit lines in traditional markets, enabling capital efficiency to be unlocked without the need to sell assets or engage in complex repurchase agreements.
For example, a money market fund manager can use Horizon to borrow iUSDe using their fund tokens as collateral. For lenders, Horizon's target users include investors and cash managers holding stablecoins who are willing to accept low-risk yields by lending against high-quality collateral. These users may be institutions seeking iUSDe or USDtb yields, looking to earn additional interest through the stablecoin lending market.
This relationship is symbiotic: Ethena provides Horizon with compliant stablecoins (iUSDe and USDtb) and a settlement layer (Converge), while Horizon offers important use cases for Ethena's USDe/iUSDe in the on-chain lending market.
Morpho
Morpho is a money market protocol that provides permissionless on-chain lending infrastructure. Its core functionality allows anyone to create lending markets with custom parameters. Each market is defined by a collateral asset, a loan asset, and a set of risk parameters, with no restrictions on the combinations that can be offered.
This design enables Morpho to aggregate liquidity across multiple markets, becoming a foundational tool for on-chain lending issuance. In practice, Morpho's architecture consists of two main components:
Morpho Protocol: Responsible for market creation and ongoing interest calculations;
Morpho Vaults: Built on top of the base protocol to manage lender risk and returns.
The protocol tracks the earnings of lenders and the debts of borrowers in all markets in real-time, while the Vault smart contracts can automatically allocate lenders' liquidity to a carefully selected set of markets, providing users with a passive, custodial yield experience. These Vaults are typically operated by professional risk managers who adjust allocations based on market conditions to optimize the balance between risk and return.
Similar to Horizon, Morpho will provide important application scenarios for Ethena's USDe/iUSDe by allowing funds, institutions, and users to tokenize real-world financial instruments and use them as collateral for lending, thereby enhancing capital efficiency. Due to Morpho's highly flexible design, it also supports the creation of permissioned markets where KYC-verified tokens can be used as collateral. This design allows Morpho to accommodate diverse credit arrangements, covering both crypto-asset-backed loans and real-asset-backed lending.
Maple
Maple Finance is a decentralized institutional credit market focused on low-collateral and cash flow-based lending. The platform connects borrowers and lenders through on-chain lending pools managed by credit assessors (known as Pool Delegates).
Each Maple lending pool has a clear investment mandate, such as lending to crypto trading firms or financing real-world assets (like invoices), and has specific terms, including interest rates, durations, and collateral requirements. Lenders inject stablecoins into the lending pool, while Pool Delegates are responsible for screening and approving loans. All loans are represented on-chain, with interest transparently accumulating.
Maple's hybrid model combines on-chain fund management with off-chain legal contracts, enabling it to offer unsecured or lightly secured loans that pure code protocols cannot achieve. Loan servicing, interest distribution, and default handling are all automated, while Pool Delegates handle due diligence, including KYC and credit analysis.
Maple offers two different products to serve different user groups:
Maple Institutional: Provides permissioned lending pools for large capital allocators and qualified investors, characterized by selected borrowers, strict risk management, and typically required collateral (such as custodial Bitcoin). These lending pools operate based on legal agreements and usually require lenders to complete KYC.
Syrup.fi: Offers permissionless lending pools that tokenize or layer some of the loans from Maple Institutional, further expanding the flexibility and accessibility of the lending market.
Pendle Finance
Pendle Finance is a decentralized protocol focused on tokenizing yield-bearing assets to enable yield trading and interest rate markets. In simple terms, Pendle allows users to split a yield-generating asset (such as a yield-bearing stablecoin or staking token) into two parts:
Principal Token (PT): Represents the principal portion of the asset, which can be redeemed for the original asset at maturity.
Yield Token (YT): Represents the right to earn yield (interest) from the asset before maturity.
Through this split, Pendle has built a market where participants can choose to lock in fixed yields or speculate on future interest rates. For example, users can sell YT to exchange for principal, locking in yield early; conversely, users can purchase YT to gain leveraged exposure to yield, betting that the underlying asset's yield will exceed market expectations.
Pendle supports a wide variety of asset types, including stablecoin yield tokens (such as sUSDe, cDAI), staking derivatives (such as stETH), and other DeFi yield tokens.
Pendle provides the infrastructure for interest rate discovery in DeFi, similar to how bond markets in traditional finance set interest rate expectations. Its architecture generates PT and YT by locking the original asset in Pendle's smart contracts. These tokens are tied to specific maturity dates (for example, PT maturing in December 2025).
Pendle's automated market maker (AMM) supports the following trades:
PT trading with the underlying asset: Implied discount rates, thus deriving fixed interest rates.
YT trading with the underlying asset: Implied yield pricing.
Over time, the price of PT will gradually converge with the value of the underlying asset (at maturity, 1 PT can be exchanged for 1 unit of the underlying asset), while YT will accumulate actual yield.
Pendle is a non-custodial and automated protocol that introduces various new mechanisms to enhance capital efficiency:
Synergy Mechanism: Automatically reinvests yield, further amplifying capital utilization.
Yield Staking: Provides users with additional yield optimization options.
Ethereal
Ethereal is a non-custodial decentralized exchange (DEX) that supports spot and perpetual contract trading, natively built on the Converge blockchain. The platform uses Ethena's USDe stablecoin as the primary margin and settlement asset, aiming for sub-20 millisecond trade latency and the ability to process over a million orders per second.
As of 2025, Ethereal is in a pre-release phase called Season Zero. During this phase, users can deposit USDe in advance to help kickstart liquidity. Early participating users will receive Ethereal Points (loyalty rewards) and additional Ethena (USDe) yield incentives, along with priority access to upcoming features.
Ethereal employs an off-chain order book system, combining off-chain high-performance matching with on-chain settlement to achieve near-instant order execution and secure, transparent trade settlement.
Off-chain Order Book Engine:
Ethereal's high-performance order book and matching engine operate off-chain, supporting spot and perpetual markets.
Through the off-chain order book system, the platform can process a large volume of orders with extremely low latency, providing a real-time trading experience.
Batch Settlement Sequencer:
Dedicated sequencers handle off-chain trades and submit the results in batches on-chain.
Sequencers aggregate user orders and trade execution results, periodically publishing compressed batches of trades to the Converge blockchain.
This batch update method significantly reduces on-chain transaction load while ensuring the security of on-chain settlements.
Ethereal's design not only meets high-frequency trading demands but also provides users with a decentralized trading experience that combines speed and security by integrating efficient off-chain processing with transparent on-chain settlement.
As an L3 (Layer 3) exchange running on the Converge blockchain, Ethereal has independent block space and control over trade ordering. This design ensures that platform performance remains stable even during peak trading periods. Unlike DEXs on shared chains, Ethereal avoids trading issues caused by network congestion or delays.
One of Ethereal's core highlights is its deep integration with Ethena's USDe stablecoin. USDe is a yield-bearing stablecoin that continuously generates yield through Ethena's sUSDe reward mechanism. This means that even when users use USDe as trading margin, their collateral assets will continue to earn interest.
The introduction of this yield-bearing stablecoin allows users to execute various on-chain trading strategies with higher capital efficiency, such as: Basis Trades, Lending, and Liquidity Provision.
All user funds are managed by smart contracts on the Ethena network, rather than being held by the exchange. This non-custodial design ensures complete control over user assets, which are always managed by the user's private keys.
The functions of the smart contracts include: managing user deposit balances, executing trade matching results, and handling asset withdrawals. Combined with the on-chain settlement mechanism, Ethereal achieves a high-performance experience similar to centralized exchanges while retaining the trustlessness and asset sovereignty of decentralized finance (DeFi).
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