USD plan for a circulating supply of 25 billion: Will Ethena become a new financial hub?

Authors: @13300RPM, @FourPillarsFP Researcher; Compiler: Block Rhythm Small Deep Editor's note: Ethena maintains a $5 billion market capitalization stablecoin USDe with a team of 26 people, hedging the volatility of ETH, BTC and other assets through a delta-neutral strategy, maintaining a $1 peg while providing double-digit annualized returns. Its automated risk management and multi-platform hedging built a moat that successfully navigated market shocks and the Bybit hack. Ethena plans to drive 25 billion USDe in circulation through iUSDe, the Converge Chain, and the Telegram app, becoming a financial hub connecting DeFi, CeFi, and TradFi.

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Have you ever tried a roller coaster ride while eating hot noodles? It sounds outrageous, but that's the best metaphor for what @ethena_labs does every day: it maintains a $5 billion stablecoin (USDe) that remains pegged at $1 at all times, despite the volatility of the crypto market. And all this is made possible by a team of 26 people led by the founder, @gdog97_. In this article, we'll take a deep dive into Ethena's unique secrets, reveal why it's so hard to replicate, and explain how Ethena plans to push USDe into circulation to $25 billion.

Hedging billions of fluctuations

Stablecoins look boring on the surface: $1 is $1, right? But dig deeper into the inner workings of Ethena and you'll find that it's not that simple at all. Instead of backing stablecoins with U.S. dollars in the bank, Ethena has adopted a robust portfolio of assets, including ETH, BTC, SOL, ETH LSTs (liquid staking tokens), and $1.44 billion worth of USDtb (a stable asset backed by U.S. Treasuries). These assets are continuously shorted in the major derivatives markets to ensure that any fluctuations in the price of the collateral are offset by the corresponding profit or loss of the short position.

Source: Ethena Transparency Dashboard

If ETH rises by 5% and your hedging ratio deviates, it could lead to tens of millions of dollars in exposure risk. If the market crashes at 3 AM, the risk engine must immediately rebalance collateral or liquidate positions. The margin for error is extremely small. However, Ethena managed billions in daily hedging during the roller coaster market of 2023-2024 without a single crash (no decoupling, no margin call, no liquidity shortage).

During the Bybit hacker incident, Ethena maintained its solvency without any collateral losses. Traditional hedge funds may require an entire floor of analysts and traders to cope with such fluctuations, while Ethena achieved this with a streamlined team and zero errors.

Ethena became the largest trading counterparty for several centralized exchanges within a few months of its launch. Its hedging trades even affected liquidity and order book depth, but few people noticed because stablecoins "are just convenient."

Regarding high yields: Ethena offers double-digit annualized returns during bullish market conditions. At first, this reminds one of the Terra/LUNA and its 20% Anchor disaster. However, the difference is that Ethena's yields come from genuine market inefficiencies (staking rewards plus positive perpetual contract funding rates, etc.), rather than from minting tokens or unsustainable subsidies.

How Ethena's Delta Neutral Magic Works

When users deposit 1000 USD of ETH, they can mint approximately 1000 USD of USDe. The protocol will automatically open a short futures position. If the price of ETH falls, the short profits offset the loss of collateral; if ETH rises, the short incurs losses, but the collateral appreciates. The final result is that the net dollar value remains stable. At the same time, when the perpetual contract market is over-leveraged in the bullish direction, Ethena (holding short) can charge funding fees, providing USDe with double-digit APY under bullish conditions without the need for fiscal subsidies.

Ethena diversifies these hedges across Binance, Bybit, OKX, and even some decentralized perpetual contract protocols to mitigate the risks and margin constraints of a single exchange. A recent governance proposal indicates that Ethena plans to include Hyperliquid in its hedging portfolio to short-sell in the deepest liquidity markets. By diversifying short positions, Ethena reduces reliance on a single platform, further enhancing stability.

Source: Ethena Transparency Dashboard

To cope with the ongoing adjustments, Ethena has deployed automated robots to work in collaboration with the trading team (similar to a high-frequency trading system), constantly rebalancing the entire multi-platform ledger. This is the reason why USDe can maintain its peg regardless of how violently the market fluctuates.

Finally, the protocol adopts over-collateralization to cope with extreme downturns and can pause minting under unsafe conditions. Custody integrations (Copper, Fireblocks) enable Ethena to control assets in real-time, rather than leaving them in the exchange's hot wallet. If the exchange goes bankrupt, Ethena can quickly withdraw collateral, protecting users from the disaster of a single point of failure.

Strong Moat

Ethena's approach seems replicable on paper (hedging some crypto assets, charging capital fees, making profits), but in reality, the protocol has established a strong moat that deters imitators.

A key barrier is trust and credit limits: Ethena hedges billions of funds through institutional trading with custodians and major trading platforms (Binance Ceffu, OKX). Most small projects cannot easily access these institutions and negotiate the minimum collateral requirements for millions of dollars in short positions on exchanges, which necessitates institutional-level rigor in legal, compliance, and operations.

Equally important is multi-platform Risk Management. Splitting large hedges across multiple exchanges requires real-time analytical capabilities that rival Wall Street quantitative trading teams. Yes, anyone can replicate delta hedging on a small scale, but scaling it up to $5 billion (and rebalancing massive collateral across multiple platforms around the clock) is another level. The complexity of the required analysis, automation, and credit relationships grows exponentially with scale, making it nearly impossible for newcomers to catch up to the scale of Ethena overnight.

At the same time, Ethena does not rely on permanent free returns. If the perpetual contract funding rate turns negative, it will reduce short positions and rely on staking or stablecoin returns. The reserve fund can buffer against long-term periods of negative funding rates, while many high-yield DeFi protocols collapse when the music stops.

By not holding all the collateral directly on a single exchange, Ethena further reduces counterparty risk; instead, assets are stored with custodians. If a trading platform becomes unstable, Ethena can quickly close positions and transfer collateral off-exchange, ensuring that the risk of catastrophic failure is minimized.

Finally, Ethena's performance in the face of extreme volatility cemented its moat. USDe has not seen a single decoupling or crash during months of intense market volatility. This reliability drives new user adoption, listings, and top-tier brokerage deals (from Securitize to BlackRock and Franklin Templeton), creating a snowball effect of trust that cannot be replicated. Talking about the gap between delta hedging and round-the-clock delivery on billions scale is exactly what makes Ethena stand out.

The Road to 25 Billion

Ethena's growth strategy relies on a self-reinforcing ecosystem where currency (USDe), network (the "Converge" chain), and exchanges/liquidity aggregation evolve simultaneously. USDe was launched first, driven by the crypto-native demand from DeFi (Aave, Pendle, Morpho) and CeFi (Bybit, OKX). The next phase involves iUSDe, a compliant version suitable for banks, funds, and corporate treasuries. Even if only a small portion of the massive bond market from traditional finance (TradFi) flows into USDe, it could push the circulating supply of stablecoins to 25 billion or more.

Driving this growth is the arbitrage between on-chain funding rates and traditional interest rates. As long as there is a significant yield gap, funds will flow from low-interest-rate markets to high-interest-rate markets until equilibrium is reached. Therefore, USDe has become the hub connecting crypto returns with macro benchmarks.

Source: Ethena 2025: Convergence

At the same time, Ethena is developing a Telegram-based application that introduces high-yield USD savings to ordinary users through a user-friendly interface, bringing hundreds of millions of users into sUSDe. In terms of infrastructure, the Converge chain weaves together DeFi and CeFi tracks, with each new integration bringing cyclical growth to the liquidity and utility of USDe.

It is worth noting that the returns of sUSDe are negatively correlated with actual interest rates. When the Federal Reserve lowers interest rates by 75 basis points in the fourth quarter of 2024, the yield on funds jumps from about 8% to over 20%, highlighting how the decline in macro rates energizes Ethena's earning potential.

This is not a slow, phased approach, but rather a cycle of expansion: broader adoption enhances the liquidity and yield potential of USDe, which in turn attracts larger institutions, driving further supply growth and more robust anchoring.

Outlook for the Future

Ethena is not the first stablecoin to promise high returns or position itself as an innovative approach. What sets it apart is that it delivers on that promise, maintaining a steady peg to 1 USD even under the most severe market shocks. Behind the scenes, it operates like a high-level institution, shorting perpetual futures and managing staked collateral. However, what the average holder experiences is a stable, yield-bearing dollar that is simple and easy to use.

Expanding from 5 billion to 25 billion is no easy task. Stricter scrutiny from regulators, greater counterparty exposure, and potential liquidity tightening could introduce new risks. However, Ethena's multi-asset collateral (including 1.44 billion USDtb), strong automation, and robust risk management indicate that it is better equipped to handle these challenges than most projects.

Ultimately, Ethena demonstrates a method for navigating the fluctuations of the crypto market at an astonishing scale using delta-neutral strategies. It outlines a vision for the future: USDe will become the core of every financial sector, from the permissionless frontier of DeFi, the trading desks of CeFi, to the massive bond markets of TradFi.