Interview with Ethena Labs’ Conor Ryder

Conor Ryder, Head of Research and Data at Ethena Labs, recently divulged the remarkable journey of Ethena Labs and the rapid ascent of its flagship product, USDe, in an exclusive interview with Blockster. Within a short timeframe, Ethena Labs has cemented its position as a significant player in the crypto sphere.

Drawing inspiration from Arthur Hayes’ blog post “Dust on Crust” in the aftermath of the Terra/Luna collapse, the team embarked on developing USDe, a stablecoin protocol built on staked Ethereum. This innovative approach presents a fresh solution to the challenges encountered by traditional stablecoins.

Fast forward to the present day, Ethena Labs has emerged as a leading revenue generator in the crypto landscape, boasting a $2 billion size and 30.2% yields. Looking ahead, Ryder shares insights into Ethena Labs’ strategies for sustaining momentum and expanding market presence.

With recent milestones such as the integration of Bitcoin as a backing asset for USDe, Ethena Labs aims to fortify its market position and drive broader adoption of crypto-native financial tools and Web3 technologies. Delve deeper into the team’s inner workings in our exclusive interview.

Congratulations on the remarkable achievements of Ethena Labs and the successful launch of USDe! Can you share with us the journey of Ethena Labs from its inception to becoming a leading player in the crypto space?

The idea behind Ethena Labs was originally inspired by Arthur Hayes, following the Terra/Luna collapse. Arthur published a blog post titled “Dust on Crust”, where he suggested that there should be a stablecoin based on delta-hedged Bitcoin positions.

Inspired by his piece, we focused on pursuing what he outlined but built on staked Ethereum and decided “synthetic dollar” was a more appropriate moniker based on its novel engineering. We wanted to provide a solution that did not exist in the market and to avoid some risks concerning the traditional financial system that are associated with traditional stablecoins.

Today, we are excited to see USDe has surpassed all expectations, and we are continuing to innovate our product with new announcements to come, following the recent launch of our governance token, $ENA.

USDe has quickly become a significant player in the stablecoin market, constituting ~15% of all ETH global open interest on derivatives. What factors do you attribute to this rapid success, and how does USDe differentiate itself from other stablecoins?

As our momentum grew prior to our public launch, we realized that we could not classify USDe, the world’s first “Internet Bond”, as a stablecoin – at least not in the traditional sense. The risks associated with traditional fiat stablecoins that have been offered, like USDC or USDT, do not apply to USDe.

In contrast to traditional stablecoins, USDe is collateralized with crypto assets on chain and corresponding short futures positions.
“The inherently different risks led us to classify our product as a separate asset class entirely: the world’s first synthetic dollar protocol.”

Conor Ryder, Head of Research and Data at Ethena Labs
The unprecedented growth of USDe since our launch has resulted in nearly ~20% of ETH open interest being represented by our hedges. Our success can likely be attributed to many factors, including the impressive yield generated by our “Internet bond”, our transparency surrounding risks, the novelty of a new asset class, and the ultimate utility of USDe and sUSDe in DeFi.

Ethena Labs is pioneering the concept of a crypto-native synthetic dollar. Could you elaborate on the mechanism behind USDe’s stability and its unique approach to value accrual via sUSDe?

Ethena employs a novel mechanism that uses spot ETH and liquid-staked ETH tokens as backing assets, and hedges that ETH exposure on perpetual futures markets 1:1 to create a synthetic dollar position.

The protocol captures both the staked Ethereum yield inherent to liquid-staked ETH tokens, alongside the basis in futures markets into a single position. sUSDe accrues value via the yield captured by both positions.

With USDe’s Total Value Locked (TVL) hitting $2.0 billion and a user base exceeding 119.75K, what strategies does Ethena Labs have in place to sustain this momentum and continue expanding its market reach?

Just this week, we announced that Ethena onboarded Bitcoin as a backing asset to USDe. With $25 billion of BTC open interest available for Ethena to delta hedge, USDe’s capacity to scale has increased by over two and a half times its present position.
“Bitcoin derivative markets are growing at a much faster pace than Ethereum, thus offering better scalability and liquidity for delta hedging.”

Conor Ryder, Head of Research and Data at Ethena Labs
We are also pleased to see a number of the bastions of DeFi integrating Ethena, further extending its utility and ubiquity.

Ethena Labs has been hailed as building the “holy grail of crypto dollars” by offering stability, censorship resistance, and capital efficiency. How does the team plan to uphold these pillars while navigating the evolving regulatory landscape?

The Internet Bond combines the relative stability of existing stablecoins with the censorship resistance of crypto assets. Users in permitted jurisdictions are able to stake their USDe to receive sUSDe to access yield generated by the protocol.

Moreover, Ethena Labs utilizes “Off-Exchange Settlement” (OES) providers to custody backing assets. This enables Ethena to delegate/undelegate collateral to centralized exchanges without being exposed to exchange-specific idiosyncratic risk.

A delta-hedged approach allows USDe to be backed 1:1 and therefore more capital efficient than some of the overcollateralized stablecoins in DeFi today.

USDe recently became the most profitable app in all of crypto within a month and is now one of the top 10 stablecoins. What factors contributed to this rapid success, and how does Ethena plan to maintain this trajectory?

Certainly, the faith our community has placed in us has been unprecedented and remarkable. With backing investors including Dragonfly, Brevan Howard, Avon Ventures, and Arthur Hayes, coupled with the existing hesitations about existing solutions on the market, we believe the product we pioneered provides a unique and truly decentralized solution to investors.

We plan on expanding upon this in our upcoming Sats campaigns, and are continuously working to ensure that our users are provided with full transparency.

USDe is now earning more in fees than Solana, Base, Arbitrum, Optimism, and every other DeFi application. What strategies has Ethena employed to achieve such impressive fee generation, and how does this contribute to the platform’s sustainability?

Ethena is currently the only DeFi protocol that captures the basis trade of perpetual futures. When users are paying >30% annual yields to go long BTC and ETH, Ethena sits on the other side of those yields collecting revenue.

At $2 billion in size and with such high funding yields, the capacity to generate revenues is significant, leading Ethena to become crypto’s highest revenue generating protocol over the last 30 days.

With USDe offering a native yield of 30.2%, how does Ethena ensure the sustainability of these high yields while managing risk and volatility in the crypto market?

The yield is achieved by shorting ETH futures and collecting funding rates i.e periodic payments to traders that are long or short based on the difference between perpetual contract markets and spot prices.

In a bull market, those yields are paid to the short side and are elevated as there is greater demand to go long crypto assets. Now, with the addition of BTC, USDe can scale even further as Bitcoin derivatives tend to offer better liquidity and size.

Looking ahead, what milestones does Ethena aim to achieve in the near future, and how will these advancements contribute to the broader adoption of crypto-native financial instruments and Web3 technologies?

We are aiming to inch closer to $10 billion TVL and beyond, following our incorporation of BTC, which should ultimately provide a sturdier product for users.

Such an incredible journey! Your story aligns perfectly with the current crypto market momentum. It’s truly inspiring to witness the rapid growth of Ethena Labs and USDe in such a short time. For those who haven’t explored it yet, don’t miss out on the opportunity to visit their website and dive into Ethena’s DeFi platform to start earning remarkable rewards. We eagerly look forward to catching up with you again soon for more exciting updates about Ethena. Thanks a lot for your time, Conor!

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