Source: Multicoin Capital
Translation: Golden Finance
We are proud to announce that Multicoin Capital's liquidity fund has invested in the ENA token—ENA is the native token of the Ethena protocol, the issuer of USDe, a leading synthetic dollar stablecoin.
In our article "The Endgame of Stablecoins," we pointed out that stablecoins represent the largest potential market in the crypto space, with yield being their ultimate competitive frontier. While we correctly assessed the direction of yield-bearing stablecoins, we underestimated the market size of synthetic dollars.
We categorize stablecoins into two types:
- Yield-sharing stablecoins
- Non-yield-sharing stablecoins
Among them, yield-sharing stablecoins can be further divided into:
- Stablecoins fully backed 1:1 by government-backed treasury assets
- Non-treasury fully backed stablecoins, i.e., synthetic dollars
Synthetic dollars are not fully backed by government-backed treasury assets but generate yield and maintain price stability through executing delta-neutral trading strategies in financial markets.
Ethena is a decentralized protocol and also the operator of the largest synthetic dollar, USDe.
Ethena aims to provide an alternative stablecoin option to traditional stablecoins like USDC and USDT—whose reserve assets can only yield returns from U.S. short-term treasury bonds. Ethena's USDe reserves generate yield and achieve target stability through one of the large-scale and validated strategies in traditional finance—basis trading.
The scale of basis trading in U.S. treasury futures alone reaches hundreds of billions of dollars (potentially even trillions). Currently, only qualified investors and institutional buyers can access hedge funds with large-scale basis trading infrastructure. However, cryptocurrency is fundamentally restructuring the financial system, allowing everyone to access such investment opportunities through tokenization.
For years, our team has been focused on synthetic dollar projects based on basis trading. As early as 2021, we published an article outlining this market opportunity and announced our investment in the UXD protocol—the first token fully supported by basis trading.
Although the concept of the UXD protocol was ahead of its time, we believe that Guy Young, the founder and CEO of Ethena Labs, has excellently realized this vision. Today, Ethena has become the largest issuer of synthetic dollars: within two years of its launch, its circulation has grown to $15 billion, and after the market crash on October 11, it has retraced to about $8 billion, still ranking as the third-largest digital dollar stablecoin after USDC and USDT.
Changes in USDe circulation (Data source: DefiLlama)
Systemic Benefits of Synthetic Dollars
Ethena is precisely at the intersection of three strong trends reshaping modern finance: stablecoins, perpification, and asset tokenization.
Stablecoins
Currently, the total circulation of stablecoins has exceeded $300 billion, and it is expected to grow to several trillion dollars by the end of this decade. Over the past decade, USDT and USDC have dominated the stablecoin market, accounting for over 80% of the total supply. Both of these stablecoins do not directly share yields with holders, but we believe that over time, sharing yields with users will become the norm rather than the exception in the industry.
In our view, the competition and differentiation among stablecoins mainly manifest in three core dimensions: distribution capability, liquidity, and yield levels.
Tether has built exceptional liquidity and a global distribution network for USDT, making it the primary pricing asset in cryptocurrency trading and the most widespread way for emerging market users to access digital dollars.
Circle, on the other hand, expands its distribution channels by sharing economic benefits with partners like Coinbase—this strategy has effectively driven growth but has also pressured Circle's profit margins. As cryptocurrency adoption accelerates, we expect more companies with extensive distribution networks in finance and technology to issue their own stablecoins, further intensifying the homogenous competition in the treasury-backed stablecoin market.
For new entrants in the digital dollar space, the primary way to stand out is to offer higher yields. Over the past few years, the narrative around yield-bearing stablecoins has gradually heated up, but those backed by U.S. treasuries have not provided sufficiently high yields to drive large-scale adoption in the crypto space. The reason is that the opportunity cost of funds for crypto-native users has historically been higher than the yield on U.S. treasuries.
Among all new entrants, Ethena is the only project that has achieved considerable distribution scale and liquidity, largely thanks to its higher yield levels. Based on the price changes of sUSDe since its launch, we estimate its annualized yield to be slightly above 10%, more than double that of treasury-backed stablecoins. This achievement is attributed to its basis trading strategy, which profits by leveraging market demand. Since its launch, the protocol has generated nearly $600 million in revenue, with over $450 million coming from the past 12 months.
Data source: Token Terminal
We believe that the true test of synthetic dollar adoption lies in whether it can be accepted as collateral by mainstream exchanges. Ethena has excelled in this regard, successfully integrating USDe as one of the core collateral assets on major centralized exchanges like Binance and Bybit, which is a key driver of its rapid growth.
Another unique aspect of Ethena's strategy is its mild negative correlation with the federal funds rate. Unlike treasury-backed stablecoins, Ethena is expected to benefit from falling interest rates—because low rates stimulate economic activity, increase leverage demand, raise funding rates, and strengthen the basis trading that supports Ethena's yields. A similar situation occurred in 2021 when the spread between funding rates and treasury yields widened to over 10%.
Although more funds will flow into the same basis trading as cryptocurrency and traditional financial markets converge, leading to a narrowing of the spread between basis trading and the federal funds rate, this convergence process will take several years.
Data source: Bitcoin funding rates, treasury yields
Finally, J.P. Morgan predicts that yield-bearing stablecoins could capture up to 50% of the stablecoin market share in the coming years. As the total scale of the stablecoin market is expected to soar to several trillion dollars, we believe Ethena is well-prepared to become a major player in this transformation.
Perpification
Perpetual futures have achieved a strong product-market fit in the crypto space. In the approximately $40 trillion crypto asset category, the daily trading volume of perpetual contracts exceeds $100 billion, with a total open interest of over $100 billion on centralized exchanges (CEX) and decentralized exchanges (DEX). They provide investors with a straightforward way to gain leveraged exposure to price fluctuations of underlying assets. We believe that more asset classes will adopt perpetual contracts in the future, which is what we refer to as "perpification."
A common question about Ethena is its potential market size—because its strategy scale is limited by the open interest in the perpetual contract market. We agree that this is a reasonable constraint in the short term but believe it underestimates the market opportunities in the medium to long term.
Perpetual Contracts for Tokenized Stocks
The global stock market is approximately $100 trillion in size, nearly 25 times the entire crypto market, with the U.S. stock market alone reaching $60 trillion. Like the crypto market, participants in the stock market also have a strong demand for leverage. The explosive growth of zero-day-to-expiration (0DTE) options confirms this—these options are primarily traded by retail investors, accounting for over 50% of the trading volume in S&P 500 index (SPX) options. Retail investors clearly wish to gain leveraged exposure to price fluctuations of underlying assets, and perpetual contracts for tokenized stocks can directly meet this demand.
Data source: Chicago Board Options Exchange/Cboe
For most investors, perpetual contracts are easier to understand than options. A product that provides 5x exposure to the underlying asset is far simpler than understanding the time value (theta), volatility value (vega), and Delta of options— the latter requires a deep understanding of options pricing models. We do not believe that perpetual contracts will replace the zero-day-to-expiration options market, but they are expected to capture a significant market share.
As stock assets become tokenized, stock perpetual contracts are expected to unlock massive new opportunities for Ethena. We believe this will position Ethena as an important source of liquidity in the early stages of the new market launch, benefiting both centralized and decentralized exchanges; alternatively, Ethena could also internalize this opportunity by launching its own branded stock perpetual contracts on decentralized exchanges. Given the scale of the stock market relative to the crypto market, these developments could expand the capacity for basis trading by several orders of magnitude.
New Distribution Channels from Fintech Companies Integrating Decentralized Perpetual Contract Exchanges
When we first proposed the idea of a decentralized digital dollar based on basis trading, decentralized derivatives exchanges were still in their early stages—lacking liquidity and not ready for mainstream users. Since then, stablecoins have become mainstream, and low-fee, high-throughput blockchains have been tested in real-world scenarios. Today, decentralized perpetual contracts on platforms like Hyperliquid have a daily trading volume of about $40 billion, with a total open interest of $15 billion.
Data source: DefiLlama
As the regulatory environment for cryptocurrencies becomes more favorable, global fintech companies are likely to increasingly embrace cryptocurrencies. Industry leaders like Robinhood and Coinbase have gradually transformed into "full-service exchanges." Many of these companies have integrated decentralized finance (DeFi) middleware to support spot trading of long-tail assets on their platforms.
Currently, most non-crypto-native users can only access a limited range of crypto assets, and only in spot form. We believe this group represents a significant unmet demand for leverage. As decentralized perpetual contract exchanges become mainstream, fintech companies will naturally integrate these products directly.
For example, Phantom recently integrated with the decentralized perpetual contract exchange Hyperliquid, allowing users to trade perpetual contracts directly through the Phantom wallet, generating approximately $30 million in annualized revenue. If you are a fintech company founder and see such results, it is hard not to want to follow suit. For instance, Robinhood recently announced an investment in the decentralized perpetual contract exchange Lighter.
We believe that as fintech companies adopt crypto perpetual contracts, they will create new distribution channels for these products, driving growth in trading volume and open interest, thereby expanding the capacity and scalability of the basis trading that supports Ethena.
Tokenization
The core advantage of cryptocurrency is that anyone can seamlessly issue and trade tokens. Tokens can represent any valuable asset, from stablecoins and Layer 1 assets to memecoins, and even tokenized strategies.
In traditional finance, the products closest to tokenization are exchange-traded funds (ETFs). Today, the number of ETFs in the U.S. market exceeds the number of publicly listed stocks. ETFs package complex strategies into a single tradable code, allowing investors to easily buy, sell, or hold without worrying about execution or rebalancing issues—all of this complexity is handled by the ETF issuer in the background. It is no surprise that the CEO of the world's largest ETF issuer, BlackRock, seems fully committed to tokenization.
The significance of tokenization goes far beyond ETFs—it makes the holding and trading of assets faster, cheaper, and more convenient (regardless of scale), while also enhancing distribution efficiency and capital efficiency. Anyone with an internet connection can instantly buy, sell, send, or receive tokens, and even use them as collateral to unlock additional liquidity. We envision a future where global fintech companies become the primary distributors of tokenized strategies, bringing institutional-grade products directly to consumers worldwide.
Ethena initially entered the market through tokenized basis trading, but over time, it is fully capable of diversifying its sources of revenue. In fact, it is already doing so. When basis trading yields are low or negative, Ethena can transfer some collateral assets to another product in its ecosystem, USDtb—a stablecoin supported by BlackRock's tokenized treasury fund BUIDL—to maintain stability and optimize yields.
Positive Core Logic for ENA
While we have outlined the long-term bullish logic for Ethena's potential market size, it is equally important to understand its team and protocol characteristics, especially regarding risk management, value capture, and future growth opportunities.
Team
"Days after the Luna crash, I resigned to start Ethena and built the team a few months after the FTX bankruptcy." — Guy Young, founder of Ethena
From our interactions, Guy has proven to be one of the most astute and strategically minded practitioners in the decentralized finance (DeFi) space. He brought his experience in cross-capital structure investments at Cerberus Capital Management to the rapidly financializing crypto market.
Guy's success is supported by a lean but experienced team of about 25 operational staff. Just to name a few core members of the Ethena team: CTO Alex Nimmo was one of the early employees at BitMEX, witnessing the entire process of turning perpetual futures into the most important financial instrument in the crypto space; COO Elliot Parker previously worked at Paradigm Markets and Deribit, and his network in the market-making and exchange sectors laid the foundation for Ethena's current integrations with these counterparties.
The results speak for themselves. Ethena has become the largest issuer of synthetic dollars in less than two years. During this time, the team acted swiftly, integrating with top centralized exchanges and establishing hedging channels that most projects take years to achieve. Today, USDe has been accepted as collateral by major platforms like Binance and Bybit. Many of these exchanges are also investors in Ethena, indicating a clear strategic synergy between the protocol and key players in the global crypto market.
Risk Management Capability
My partners Spencer and Kyle published an article in 2021 titled "DeFi Protocols That Do Not Capture Value, DAO Management Risks." The core argument is simple: DeFi protocols that do not manage risk but attempt to charge fees will be forked, as there will always be zero-fee forked versions. Protocols that inherently need to manage risk must charge fees; otherwise, no one will provide a risk backstop for the system.
Ethena is the best example of this principle. The protocol demonstrates strong risk management capabilities, successfully navigating two major stress events this year, each time reinforcing its credibility, resilience, and brand trust within the crypto ecosystem.
Bybit Hack: The Largest Hack in Crypto History
On February 21, 2025, Bybit suffered a $1.4 billion hot wallet hack, which served as a real-world stress test for Ethena's counterparty model. This incident triggered a massive withdrawal wave from Bybit, but Ethena's strategy was unaffected.
Due to hedged positions and collateral assets being spread across multiple platforms and secured by off-chain custodians, Ethena maintained normal operations throughout the event. Importantly, Ethena did not lose any collateral assets, and the minting and redemption processes related to Bybit were not disrupted.
October 11 Sell-off: The Largest Single-Day Liquidation Event in Crypto History
On October 11, 2025, the crypto market experienced an extreme deleveraging event—approximately $20 billion in positions were liquidated within hours, leading to a significant shrinkage in open interest across major centralized and decentralized exchanges. During this process, influenced by the design of the Binance oracle (which was later criticized), the trading price of USDe on Binance briefly dropped to about $0.65. However, on more liquid on-chain platforms like Curve, the price of USDe remained close to parity (see below), and the redemption function operated normally—indicating that this was a price dislocation on a specific platform rather than a systemic decoupling. Guy's tweets on the X platform detailed the events of October 11 and are worth reading.
Data source: X platform
In both of these events, the Ethena team communicated transparently and did not lose any user funds. Meanwhile, the protocol continued to operate normally, processing billions of dollars in redemption requests within hours, all transactions verifiable on-chain. Such moments test the risk discipline of any protocol. Successfully managing large-scale responses to such stress events not only strengthens trust and credibility but also builds brand equity and competitive barriers—creating a strong moat for DeFi protocols like Ethena.
It is important to note that we have reason to expect that the Ethena protocol will face more stress tests in the coming years. We do not believe that risks are absent or have been completely eliminated; rather, we want to emphasize that Ethena has demonstrated strong performance and resilience in some of the most significant recent market stress events.
Value Capture Potential
We believe that Ethena has the ability to charge higher rates compared to stablecoins like USDC. Unlike USDC, Ethena actively manages market risk, providing users with higher yields in most cases, and may have a negative correlation with interest rates in the near to medium term—all of these factors enhance its ability to capture and maintain long-term value.
Although the ENA token currently primarily serves as a governance token, we believe there is a clear path for value accumulation. Ethena generated approximately $450 million in revenue over the past year, and this revenue has not yet been distributed to ENA token holders.
A rate switch proposal put forth in November 2024 outlines several milestones that must be achieved before ENA holders can receive value distribution. All of these conditions were met before the crash on October 11. The only metric that has not been met is the circulating supply of USDe—we expect that before the rate switch is initiated, the circulating supply of USDe will exceed $10 billion. The risk committee and community are currently reviewing the implementation details of the rate switch.
Our assessment is that these developments may be viewed positively by the public markets, as they will strengthen Ethena's governance synergy, expand the long-term holder base, and reduce selling pressure on the token.
Long-term Growth Potential
With its existing business, Ethena is already one of the highest-revenue protocols in the crypto space.
Ethena is leveraging its leading position to launch multiple new product lines based on its core strengths in stablecoin issuance and expertise in crypto perpetual contract exchanges. These product lines include:
Ethena Whitelabel: A "stablecoin as a service" solution where Ethena customizes stablecoins for large blockchains and applications. Ethena has already established whitelabel partnerships with megaETH, Jupiter, and Sui (via SUIG).
HyENA and Ethereal: Two decentralized exchanges for third-party perpetual contracts built on USDe collateral, which not only expand the use cases for USDe but also generate trading fee revenue for the Ethena ecosystem. Both projects are developed by external teams but create direct value for Ethena.
These potential product lines will further solidify Ethena's leading position in the synthetic dollar space.
As all new product lines are built on Ethena, the protocol is expected to gain economic benefits from these initiatives, complementing its already strong revenue.
Reasons for Our Long-term Optimism About Ethena
In a stablecoin market long dominated by USDT and Circle, Ethena has carved out a unique niche, becoming a clear market leader in the synthetic dollar category.
With the surge in stablecoin numbers, the tokenization of traditional assets, and the rise of decentralized perpetual contract exchanges, we believe Ethena is uniquely positioned to fully capitalize on these trends—transforming global leverage demand into attractive and accessible yields for users and global fintech companies.
The protocol's strong risk management culture has been tested in real-world stress tests and continues to succeed, helping Ethena build deep trust and credibility among its users and partners.
In the long run, Ethena can leverage its scale, brand, and infrastructure to expand into other product areas, diversify its revenue, and enhance its ability to withstand market shocks.
As the fastest-growing issuer of synthetic dollars in the fastest-growing category of stablecoins (yield-bearing stablecoins), Ethena has a perfect advantage to incubate new business lines, bringing additional growth to the most profitable businesses in cryptocurrency, exchanges, and deposit/withdrawal channels, while increasing the supply of USDe.
The future opportunities are immense, and as long-term holders of the ENA token, we are very excited.
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