In May I outlined our Ethena 2024 Endgame Roadmap describing our vision to build what we viewed as the most important product in crypto: Internet Money; and in doing so, force the convergence of capital and interest rates across DeFi, CeFi and TradFi.
On reflection, our proudest moment this year was our resilience during the 6 months of downtrend. Many sidelined spectators from the peanut gallery were celebrating during this period of market weakness, but some of you stuck with us. And I couldn’t be more grateful that you did.
I fully appreciate it was not easy to support Ethena when we first launched. There were unique risks, new concepts to understand, and ultimately some level of trust was required that we would execute as promised.
But that is the nature of trying something new and challenging assumptions in an attempt to push the space forwards.
The team and I are thankful that you believed in us, and we feel grateful to be able to spend every hour of every day trying to make a better product and payback the trust you all gave us.
I quit my job to build Ethena a few days after Luna collapsed and hired the team a couple of months post-FTX.
We did our best building in the 2023 bear market, and we doubled down during the last 6 months of downtrend to 10x the ambitions of what we are trying to achieve with Ethena on both the core products and ecosystem.
And in this piece I will share the details of our ambitions for 2025.
Content Overview:
This piece will cover the following topics:
i) Summary on Ethena metrics in 2024
ii) Ethena entering traditional finance with a tailor made product offering of sUSDe
iii) Why sUSDe is the next logical step for traditional finance after ETFs
iv) Macro tailwinds for USDe with easing rate environment
v) The present and future of the crypto dollar landscape
vi) Ethena building a Telegram saving and payments application for 1 billion people
vii) The Ethena Network ecosystem applications and new chain
Summary on Ethena in 2024:
Highlights in 2024 for Ethena:
i) Grew to 3rd largest USD asset in the space at $6 billion supply in 10 months
ii) Fastest USD asset to reach $5b supply in crypto history
iii) Surpassed $1.2 billion run-rate annualised revenue in the last month
v) 2nd fastest crypto startup to reach $100m of revenue behind only pump.fun
vi) In December became the highest revenue per FTE protocol in the space
What I first found interesting about DeFi protocols was that when you combine:
i) financial services scaling at the marginal cost of software
ii) capital being free to move around the world at the speed of the internet
You can produce the most profitable entities on earth with close to zero cost base.
To that end, Ethena didn’t exist a year ago:
Ethena opened to the public in February 2024. Now standing at ~$6 billion of USDe supply, Ethena was one of the fastest growing applications in crypto history. Only a year into our existence, USDe stands behind only USDT and USDC which have been operating for close to a decade.
Outside of USDT and USDC, Ethena alone accounted for 85% of all onchain USD asset growth in 2024. In recent weeks, USDe has been outpacing aggregate ETF growth in notional dollar inflows, and these were some of the most successful ETF products in history.
Within DeFi, Ethena has become a crucial building block for other financial applications. More than 50% of Pendle’s TVL is attributable to Ethena. Around 25% of Sky’s revenue, or >$100m, is in some way attributable to Ethena. About 30% of Morpho TVL is from leveraging Ethena assets. Ethena’s launch on Aave was the fastest growing new asset in 2024, reaching over $1.2b in three weeks. The majority of EVM based perpetual exchanges have integrated USDe collateral.
Ethena has also been one of the first onchain products to start to penetrate CeFi markets primarily used as margin collateral for trading derivatives. USDe is now integrated within ~60% of the centralised exchange market, with only two of the largest five exchanges yet to integrate USDe. In just a few weeks, USDe flipped USDC balances on Bybit demonstrating the product market fit for this specific use case.
USDtb was also launched last month using BlackRocks BUIDL as the collateral backing. This product functions like a normal stablecoin for the end user, but is specifically designed to align with distribution partners such as centralised exchanges to embed the product in their platforms. We will be releasing exchange integrations through the month of January, and this will now allow those entities to offer the full spectrum of dollar products to their users with Ethena products.
Lastly, we have seen decentralised and onchain stablecoins begin to back their own products with some mix of USDe and RWA products. Ethena can now provide the back end infrastructure to give those issuers both products, for example as we have seen with Sky, Frax and Usual all using Ethena products within their own offering.
But all of the above is almost insignificant in the context of what lies ahead.
The next step of Ethena’s growth will primarily be driven by exporting the product into traditional finance.
The infrastructure is now in place, the regulatory pathway for the product in TradFi is clear, and the size of opportunity dwarfs anything we have seen within crypto so far.
TradFi: Convergence:
Fixed income markets are the largest liquid investment class in the world at over $190 trillion in size. The majority of asset management, sovereign wealth, pension funds and insurance pools of capital sit within fixed income products. The entire crypto market capitalisation is currently smaller than the debt capital market in Australia which has less than 0.5% of the world population.
The most important financial instrument on earth to save and preserve wealth is simply a dollar with a yield. It sounds simple, but the demand for this product is several orders of magnitude larger than the entire crypto market combined, including Bitcoin.
And that is why the next logical step for these entities following the ETFs is a dollar savings product. The futures basis is the only market large enough in crypto with the capacity for their level of demand in a dollar format.
Ethena is now positioned to provide this product to them.
TradFi Wrapped sUSDe: iUSDe
Ethena will launch a new product next month designed to be able to export sUSDe in regulated offerings to legacy finance: iUSDe.
iUSDe is identical to sUSDe with the addition of a simple wrapper contract that adds a handful of transfer restrictions at the token level so that it can be held and used by traditional financial entities.
This will include working with partners to provide isolated SPVs managed by regulated investment managers who allow subscriptions into the shares of the vehicle to enable traditional finance an efficient entry into the product without ever needing to touch crypto rails.
We will be announcing our initial TradFi distribution partners for iUSDe this month.
The singular focus for Q1 2025 will be working with traditional finance distribution partners to enable their clients to access iUSDe, across the full spectrum of:
i) Asset Managers
ii) Private Credit Funds
iii) Exchange Traded Products
iv) Private Investment Trusts
v) Prime Brokers
By providing the connective tissue to legacy finance which can source dollar borrow at SOFR+100-200bps spread, capital will be free to flow into Ethena at unprecedented scale until sUSDe protocol returns converge to a tight spread to risk-free rates.
In this context Ethena will perform the role of an interest rate arbitrage vehicle which forces the convergence between capital flows and interest rate markets across DeFi, CeFi and TradFi.
Traditional finance will be able to price iUSDe as a spread to risk-free rates, and USDe supply will simply adjust to changes in crypto native rates to act as the balancing item that ties legacy finance and internet finance together.
With the market as it exists today, we see more than $10b iUSDe of additional capacity for these pools of capital.
Why iUSDe is Compelling to TradFi
What is unique about Ethena iUSDe is:
i) it combines two of the only forms of crypto-native real return at billion dollar scale
ii) the return has exhibited weak negative correlation to rates in legacy finance
iii) the underlying backing is sitting in custodians which TradFi can underwrite
Combining the only two sources of scalable crypto-native return into a dollar product gives simple access to these allocators within traditional finance to access and harvest the excess returns of crypto in a single asset.
When Ethena iUSDe is viewed in the context of existing legacy fixed income portfolios, an unlevered dollar producing ~20% APY in the last year is unheard of. As rates decline, iUSDe will only become more compelling as an alternative.
The size of the basis within the crypto markets is not well understood. It is by far the largest potential source of real cash flow in the entire space and has increased more than 3x in the year since Ethena launched. Importantly, this is sufficient scale to interest traditional finance as an opportunity.
$110b of total open interest and an average annualised basis of ~20% results in ~$10b of annualised cash flow produced by Ethena, almost 10x the size of the cash flow produced in the entire ETH liquid staking market.
Presently Ethena represents around 7% of open interest. At $200k BTC and only 10% of open interest USDe supply would sit at $25b.
The pathway is clear, it is now on us to execute and deliver the product to legacy finance.
Macro Rate Tailwinds and Negative Correlations:
The property of sUSDe that is most compelling for traditional finance is that the sUSDe protocol returns are negatively correlated to real rates. Almost no other debt product in legacy finance exhibits the same property.
This is intuitive: as real rates continue to fall, speculation in crypto accelerates alongside increased long sided demand for leverage, which will increase funding rates and ultimately the yield harvested by Ethena.
We observed this phenomenon during ZIRP in 2020/21 where the funding spread to real rates widened beyond 15%, and this has begun to happen again in Q4 2024.
More recently we observed this exact response with recent rate reductions as ~75bps of cuts saw funding rates increase from ~8% to more than 20% during months in the last quarter. Again, this trend will continue into the easing cycle next year.
Declining rates of course have a compounding effect on both the growth and fundamentals of Ethena. Falling rates not only drive stablecoin demand expansion, but as the benchmark rate for RWAs decline, Ethena becomes more compelling from a risk-adjusted basis to offset reduced real rates on legacy fixed income products.
As a simple illustration for a $100b fixed income portfolio, with 200bps of rate reductions you would require adding ~$15b of additional sUSDe to keep blended portfolio returns at the same level.
A superior risk adjusted dollar yield produced by crypto native sources is the type of product which brings billions of dollars of flows out of the old system, and into the internet system.
Ethena will be the conduit through which this happens.
And Q1 of 2025 is when it will happen.
The Future of Crypto Dollar Wars:
The present and future of crypto dollars will look quite different.
Today, the use case for stablecoins can be broadly segmented into the following categories:
i) Exchange trading and collateral: currently dominated by Tether with majority of spot and perpetual pairs denominated in USDT, market size of ~$125b. Ethena competing as derivative collateral having flipped USDC on second largest exchange.
ii) Developing world store of value: global access to dollar rails for individuals outside of the US banking system, currently dominated by Tether on Tron with a current market size of ~$60b.
iii) Savings tool or investment product: currently dominated by Ethena and Sky with almost zero existing legacy finance exposure to onchain products, current market size of ~$15b.
iv) Payments use cases: market size almost non-existent now, some presence from PYUSD and USDC but no meaningful integration into traditional payments rails yet, current market <$5b.
In summary, Tether dominates the two largest current use cases: trading and store of value in the developing world.
However, I believe the landscape is going to change dramatically with the entrance of:
i) traditional finance into savings product use cases
ii) fintechs and web2 incumbents into payment product use cases
While both of the above categories are the smallest now, they have the largest growth opportunity ahead of them.
While Ethena has found product market fit in the two current most popular use cases, I believe the entrance of traditional finance into savings products and web2 or fintech incumbents into payments use cases will each provide more than $50b of net new dollar flows into the market in the next two years.
sUSDe will be the main beneficiary of the former.
As for the latter, rather than compete directly with payments companies on their own turf, we plan to address the payments and savings tool use case via building a dedicated application on Telegram and within the TON ecosystem.
A Product for One Billion People:
In 2025 we will be releasing a dedicated use case for sUSDe within the Telegram application where users can send, spend and save within a mobile neobank like experience.
Payments will be connected directly to Apple Pay where you can move between a savings asset in sUSDe to direct mobile tap payments from your phone.
A dollar with a yield is the most important savings asset on earth to preserve wealth and it is the only crypto enabled product I believe will touch the hands of a billion people outside of Bitcoin.
Immediate access via Telegram’s 900m+ users provides the distribution platform to deliver this product to the world.
Together we can provide a billion people a payments and savings product which is as easy to access as sending your friend a message.
Ethena Network:
The core product focus for Ethena is simple: to sit alongside Tether as the most important product in crypto with both USDe and USDtb.
However, in addition to these core products Ethena will continue its transition from being a single asset issuer into a platform for the best builders to leverage and enable onchain financial innovation.
And as part of building this ecosystem upon sUSDe, sENA has been structured to accrue value in a similar token model to BNB where ecosystem applications have set aside material portions of their token supply to be airdropped to sENA holders.
Dollars remain the structural plumbing through which onchain capital flows, both for settlement and payments but also all core DeFi primitives like trading, lending, derivatives and leverage.
Every protocol today in DeFi that touches dollars can be rebuilt around Ethena and have structurally improved economics by default.
sUSDe unlocked new innovation this cycle for example with PT fixed rate borrowing, levered strategies on money markets, and reward-bearing derivative margin collateral. However, we are yet to see the full scope of new products that have not been built but are now possible with sUSDe.
The Ethena Network is our initiative to directly support new protocols innovating with Ethena sUSDe enabled applications while aligning ENA with the success of these new protocols.
Two applications have already been announced:
i) Ethereal: a perpetual and spot exchange built on its own appchain running its entire orderbook with sUSDe and native rewards embedded, where Ethena will provide liquidity and hedging flows into the exchange
ii) Derive: the largest onchain options and structured products protocol where sUSDe is a core collateral asset for the system
Ethereal will be opening their testnet next month, and Derive is set to launch their token in the next two weeks.
These are just the first examples of an entire DeFi ecosystem that will be built on sUSDe with more to follow in Q1 2025.
Specifications on the chain will be released in Q1 alongside Ethereal mainnet.
Again I want to thank you all for the support in 2024. Ethena would be nothing without our users and everyone who continues to believe in our vision.
2024 was our first year with a live product where we built the foundation to set ourselves up for this precise confluence of macroeconomic tailwinds.
In 2025 we will disrupt money on a scale far beyond what you have seen so far.