Ethena: Scaling Crypto-Backed Stablecoins with Native Yield

Stablecoins remain one of the most popular use cases for blockchain technology. However, the vast majority of stablecoins in circulation are typically custodial models with limited visibility into the status of the underlying reserves (Figure 1). A number of models with fewer trust assumptions have been attempted onchain historically but typically struggle to scale past a certain point (commonly around $100M of supply).

The so-called stablecoin trilemma delineates opposing forces of stablecoin properties - price stability, capital efficiency, and decentralization - where strengths in one or two properties tend to lead to a weakness in the third. While this generally holds true, more nuanced interpretations seek to understand the limits imposed by various tradeoffs. Fully crypto-backed stablecoin models may not be able to scale to the same degree as redeemable fiat-backed stablecoins (effectively infinitely), but still may be able to achieve significantly better results than prior iterations.