Common Ethena Concerns Explained

Since launching on mainnet last November, Ethena’s USDe synthetic dollar has grown to over $1B of circulating supply (Figure 1, below) with significant integration across a number of prevalent DeFi protocols. As USDe and sUSDe (i.e., staked USDe) proliferate throughout DeFi, discussion surrounding the various risks and technical considerations become more acute. This post will provide an overview of discussions to date and explore the nuances of each.  

In just a few months, Ethena has amassed approximately 10% of all open interest on ETH perpetual futures contracts. As USDe reserves account for an increasingly large share of open interest, it is possible that Ethena itself may compress the yield paid to USDe stakers. So far, funding rates have remained relatively high despite the significant sell-side pressure created by USDe issuance. It’s possible that accumulating 10% of open interest in short positions in the span of a 2-3 month period is not sufficient to significantly compress funding rates, but it is also possible that shorts opened for delta neutral positions impact funding differently than unhedged short positions.