Ethena as An Incubator
I believe that any core DeFi primitive today can basically be rebuilt or adjusted to work around Ethena.
By integrating (s)USDe, developers/protocols automatically expand the economic surface that they can tap into for: 1) taking revenue and creating sustainable business models, 2) driving unique token-economic models, 3) creating new financial products or kickstarting products that are fundamentally sound but in the past have not worked due to rewards/yields not working at scale.
For a few examples:
- Undercollateralized lending where sUSDe is the reserve asset of the pool, allocating passive liqudity to bolster baseline yields. In the future, when sUSDe is accepted everywhere as margin collateral, loans can be obtained denominated in sUSDe which will dramatically increase pool rates past hurdles to bring capital over from overcollateralized lending. Further, borrow rates can be reduced and subsidized by sUSDe
- A ve(3,3) DEX where all pairs are against sUSDe, and the DEX uses a similar mechanism to Balancer or Curve, whereby the protocol can redirect rewards from a reward-bearing asset in a pool to different mechanisms. A DEX where this is $100 million in TVL, half of which is in sUSDe lets say, would automatically have a $12~15m reward pool to tap into for: bribes, driving a token flywheel, for buybacks or burns, revenue for the team to operate, or otherwise
- Applying sUSDe to gambling dollar inventory can be a game changer for GambleFi protocols and centralized gambling sites. sUSDe rewards can be used to 1) increase deposits / idle balances, 2) reduce house edge, 3) and incentivize unique player retention mechanisms to drive additional volume.
And so on…
What’s cool is some of these Ethena-powered products are only possible on chain, not even with any Frankenstein CeDeFi hybrid or in TradFi. Hopefully you will see these products drive additional adoption of DeFi while at the same time bolstering USDe permanence and adoption.
And as developers begin to come around the corner on USDe, we’re excited to support them.
The Ethena Network (
@ethenanetwork) is one new initiative used to support and expedite these integrations.
The first protocol part of this initiative is
@etherealdex, a CLOB-based perpetuals and spot DEX built by some DeFi chads that Ethena is supporting. We’re quite excited how Ethena can power perp dexes and support them in becoming even better protocols and business models.
At a high-level: Most perpetual DEXes are cash flow negative, overspending on incentives for fees that often do not even accrue to token holders or a DAO. With liquidity, execution on certain perp DEXes is limited to smaller size, especially on long-tail pairs. Even on more liquid on-chain venues, funding rates can blow out as there aren’t as many market makers operating on chain. The unpredictability around funding rates reduces volumes as traders can be more easily caught with their pants down.
Ethena provides a solution for the problems that plague perp DEXes:
- Liquidity: Assuming approval via the Ethena Risk Council, liquidity can be deployed from USDe backing to perp DEXes to take sell-side positions, similar to what is being done with Hyperliquid with their BTC, ETH, and SOL markets.
- Funding Rates / Cost of Capital: A byproduct of this dynamic is that the cost of capital—or funding rates—on Ethena-powered perpetual DEXes will be more stable and are less likely to blow out due to the consistent short-side applied to balance these markets. Increased reliability/stability around funding rates will lead to increased user trust, and ultimately user acquisition and volume.
- Protocol Economics: By ingesting sUSDe as the core collateral for these exchanges, exchanges are given a way to fund and incentivize trading activity, internal operations, or user acquisition programs, while reducing token emissions.
Ethena Network will bring similar improvements and alignment with more applications where USDe exists as its core asset.
The Ethena Network initiative will help to cement Ethena as more than just an asset issuing protocol, but a platform that the best builders can leverage into long-term success and mutually beneficial growth, and as a way to drive utility to ENA holders.
Please reach out if you’re interested in joining hands with us on this!