Cooki on Warpcast

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https://warpcast.com/~/channel/ethfinance

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shazow pfp

I saw a take that one reason $ETH price is suppressed is because it's the primary target for hedging via shorts: 1. $ETH has by far the most liquidity against stables, especially on defi/dex 2. If the crypto market crashes, $ETH is very likely going down with it So whales can ape positions into whatever tokens ($BTC, $SOL, whatever) and hedge their positions by shorting $ETH. If this turns out to be true, and it's responsible for holding down the price, what should we be doing differently? Is there something that "the devs" should do about this? Kind of a curse of being the best at something while also correlated with a bunch of other assets.

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matthewb.eth pfp

yes, but the reason that strategy is so consistently effective is precisely because there is less buy pressure on ETH. it sells off more on downturns vs. BTC and SOL, and doesn’t get bought up as fast. I read some analysis that argued that Ethena was a factor in this, but I also think there is some supply overhang from 2021 round trippers (imo).

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shazow pfp

How do you measure buy pressure independently of sell pressure? Would be curious to read more about the Ethena thing if you stumble on it!

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matthewb.eth pfp

I'm sure there are technical ways to analyze this but basically ETH drops like a stone and is slow to bounce (or doesn't), contrast that to BTC where dips are usually eaten up quickly. re: Ethena, pretty compelling imo: https://x.com/MrBenLilly/status/1875640368445997379

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Cooki pfp

But Ethena is delta nuetral though so I don't really see how this could work. The whole idea is that you remain as long as you do short, and just collect the funding rates from those that prefer to be long on leverage. Unless I'm missing something this shouldn't impact price negatively (or positively).

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shazow pfp

I'm not super familiar with how Ethena works (aside from the recent Chopping Block podcast with Guy Young), but wouldn't the short/long positions be asymmetric depending on the direction of the market?

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Cooki pfp

Can you explain this like I'm five? If Ethena is taking directional price risk that's risky as fuck isn't it? What happens when the price moves against Ethena in this case?

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shazow pfp

I think this explains it but I don't fully grok it yet, study group?? https://docs.ethena.fi/solution-overview/usde-overview/delta-neutral-examples

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Cooki pfp

My AI best friend says there's no directional USD asymmetry given these docs

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shazow pfp

Ok I think I get it: "When minters provide assets in the process of minting USDe, Ethena opens corresponding short derivatives positions to hedge the delta of the received assets." So unlike DAI, where a CDP locks up an overcollateralized ETH to mint DAI (effectively reducing sell pressure), with Ethena will take *existing* ETH collateral and then create a corresponding short position to mint USDe (effectively creating sell pressure). So in the scenario where you had no ETH in the first place and you just swap some USDC to USDe, there is no pressure impact. *BUT* if you already have ETH/stETH and you want to use it as collateral to mint USDe, that forces a sell. Obviously not the same thing as DAI, and you wouldn't use it the same way or get the same tax treatment (recoverable loan). Instead, it does give a way to exit from ETH to stable while still earning ETH yield? Not sure what portion of usage this represents. https://docs.ethena.fi/solution-overview/protocol-revenue-explanation

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