Ethena, last year's most scrutinized protocol, has excelled by reimagining stablecoins. Instead of payments, USDe's designed to make every dollar work harder for traders, earning yield while posted as collateral across major exchanges. Here's how Ethena is becoming the default collateral for crypto derivatives trading.👇 ~~ Analysis by @davewardonline ~~ The Delta-Neutral Machine Inspired by Bitmex co-founder @CryptoHayes's 2023 piece "Dust on Crust," @ethena_labs's flagship product is USDe, a stablecoin designed to generate superior yields through a delta-neutral strategy. Ethena holds diverse, "bluechip" crypto collateral (BTC, liquid staked ETH, SOL) and takes short positions on these assets using perpetuals. If prices rise, collateral gains offset short losses; if prices drop, short profits offset collateral losses. This keeps USDe pegged at $1 in most market conditions, backed by approximately $1 worth of collateral. The protocol generates yield from funding rates (small payments between traders that keep futures prices aligned with spot prices), while the liquid staked collateral produces staking rewards. Ethena passes on these rewards to holders of sUSDe (USDe must be staked for sUSDe to earn these yields). In 2024, this delivered a 19% average return to sUSDe holders, far outpacing traditional stablecoins. A Different Kind of Stablecoin Despite its success, USDe behaves nothing like USDT or USDC. While those stablecoins thrive on velocity, changing hands constantly for payments, USDe exists in opposition to the typical profile of a "successful" stablecoin. Despite USDT having only 18x the supply of USDe, it has 1,700x the yearly transfer count, as Nishil Jain points out. But USDe is simply different. Because it must be staked to earn yield, the overwhelming majority of its on-chain activity is tied to lending and yield rather than transfers. Of the ~$13.6B supply, about 42% sits in the sUSDe staking contract, ~26% in centralized exchanges, and another 10% in yield or lending, meaning roughly 78% of USDe is positioned to earn yield. Over half of sUSDe itself has been lent out again for additional returns. More telling: during market crashes, Ethena retained an average of 76.2% of its TVL, far exceeding even blue-chip lending protocols like Aave at ~62%, according to @a1research__. USDe is designed to maximize capital efficiency within our onchain landscape. Users aren't transferring USDe to buy coffee; they're holding it to earn yield and using it as trading collateral. The Perfect Trading Collateral Recently, Ethena partnered with @binance to allow USDe to be used as trading collateral, with users only needing to hold USDe, not stake it, to qualify for yield. This marked the fifth integration of USDe into "offchain" trading venues, making clear that Ethena's primary growth strategy is becoming the default collateral for derivatives trading, by far the largest market for cryptocurrency trading, accounting for 68% of all trading in 2024. Why would traders prefer USDe over USDT or USDC? USDe provides unmatched capital efficiency. Posting USDe as collateral means traders can: ➢ Cover trading costs with yield: the ~10-20% annual returns offset funding costs on leveraged positions ➢ Build collateral buffers automatically: yield compounds over time, increasing the margin of safety against liquidations For Ethena, this strategy would also: ➢ Help protocol revenue: each newly minted USDe means another dollar deployed in Ethena's basis trade ➢ Keep capital sticky: traders would have to close positions to withdraw their USDe, which they have low reason to do since USDe helps offset funding rates and grow their collateral The integrations speak to this success. Bybit, Deribit, MEXC, Gate, Binance (now with Earn at 12% APR and over $2B supply), Kraken, and Coinone have all enabled USDe as collateral that continues earning yield. Ethena's excitement about Hyperliquid feels like a natural next step. The Regulatory Hedge: USDtb While USDe targets the derivatives market, Ethena's also building inroads with TradFi through USDtb. With regulations like the GENIUS Act progressing, mandating full backing by high-quality liquid assets and restricting yield passthrough to retail holders, USDe's algorithmic structure faces potential headwinds. Germany's BaFin has already restricted USDe over MiCA compliance concerns. Launched at the end of last year, USDtb offers an alternative. Backed by BlackRock's BUIDL, essentially tokenized U.S. Treasuries, it provides the regulatory clarity that institutional players demand. No complex derivatives strategies, no algorithmic mechanisms, just straightforward treasury backing that meets current and proposed regulatory standards. Already responsible for ~12.5% of Ethena's total stablecoin supply, USDtb serves as Ethena's bridge to traditional finance. It gives risk-averse institutions a way to enter the Ethena ecosystem without touching the more complex USDe, and positions Ethena to compete directly with USDC and USDT for institutional flows. Rather than betting everything on one model, Ethena has built optionality into their growth strategy. USDe captures the crypto-native market seeking yield and capital efficiency, while USDtb pursues institutional adoption through regulatory alignment. It's been a tremendous year for Ethena, which has gone from a protocol many were skeptical of to a true DeFi cornerstone. With USDe, Ethena has created the perfect stablecoin for crypto's internal economy, a yield-generating, capital-efficient collateral that makes every dollar work harder. With USDtb, it's built a bridge to traditional finance and regulatory acceptance. Together, they position Ethena to capture value regardless of how the stablecoin market evolves. As the protocol implements its fee switch and continues expanding exchange integrations, one thing becomes clear: Ethena's demonstrating the range of possibilities for what stablecoins can be, productive assets that thrive by focusing on one particular use case. Whether that happens through innovative derivatives strategies or traditional treasury backing, Ethena seems determined, and well positioned, to win either way.