Davide
@0xdavide
💵What can happen to Ethena in Bear Market? Can Internet Bond (USDe) lose the peg from the dollar? In this thread we will see: 1) When Ethena works well 2) Differences with LUNA and UST 3) What can happen in Bear Market They are essentially not exposed to market volatility (the collateral uses Delta Neutral strategies simultaneously both "long" and "short"). If you have 1000 ETH: 500 are "long" and 500 are "short". Yield comes from staking ETH on the spot position and from the Positive Funding Rate (on the short position). Even though there is no direct exposure to the Crypto market, things work well in bull markets because: 1) The Funding Rate is positive (longs pay shorts) 2) The market goes up so ETH in staking generates higher Yield Ethena (USDe and ENA) work in a hugely different way from Terra (LUNA and UST). The only thing in common is the use of a collateral in staking.
2 replies
0 recast
1 reaction
Davide
@0xdavide
How did Anchor guarantee 19% APY on UST to lenders? 1) Borrow interest (like a normal lending platform) 2) Borrowing was incentivized by giving away the ANC token (which lowered the borrow APY for those who asked for loans). If a loan "costs" 13% per year but I give you ANC at 6%...you are only paying 7% 3) They put LUNA collateral in stake (but did not use futures or delta neutral strategies) When Anchor reserves were running out (19% was no longer sustainable) a dynamic interest rate was introduced via Governance so the APY on UST would have dropped to 5-6%. However before this happened, the LUNA/UST protocol was "attacked" by shorting UST which lost the peg (withdrawals from Anchor and sales of UST added fuel to the fire causing Terra and Anchor to collapse). The collapse of LUNA (infinitely inflated) also brought it to 0.
0 reply
0 recast
0 reaction
Davide
@0xdavide
What could the Bear Market bring to Ethena? 1) Negative Funding Rate (it is rare but in strong bear markets it can happen that shorts pay longs) 2) ETH staking becomes less profitableAt this point, the APY on USDe will drop enormously. In the event of a bearish trend with strong flash crashes, if USDe loses the peg, the bank run that occurred on Anchor could happen. Unfortunately on exchanges it is possible to short USDe (it can be a protection from the spot position on Ethena but also a double-edged sword for those who, at the slightest depeg of USDe, try to take advantage of the situation by sowing panic and cascading sales). I am using Ethena and USDe holds the peg better than any other stablecoin, however when the market becomes bearish you will have to be very careful.
0 reply
0 recast
0 reaction
