Guy Young reveals the reasons behind Ethena’s rapid rise in the stablecoin sector, as well as his views on the current market landscape.
Written by: Empire
Compiled by: Plain Language Blockchain
Recently, the USDe stablecoin of Ethena (ENA) has become extremely popular, with its market capitalization skyrocketing from 140 million USD to 7.2 billion USD within a year, increasing over 50 times. After the passage of the “GENIUS Act”, Ethena Labs quickly partnered with the U.S. federal crypto bank Anchorage Digital to launch the first GENIUS-compliant, federally regulated stablecoin USDtb, bringing compliant stablecoins to U.S. retail investors. At the same time, StableCoinX was launched, raising 360 million USD, planning to go public on NASDAQ, and initiating a 260 million USD buyback plan, stirring up market excitement.
Recently, Ethena founder Guy Young was interviewed by Hive Mind host Jose Madu, revealing the reasons behind Ethena’s rapid rise in the stablecoin sector, as well as his views on the current market landscape.
The following is an excerpt from the podcast:
Q1: Guy, you made a significant announcement regarding USDe assets this week, entering the treasury bond company sector. Can you share some background on this and why it is important?
Guy Young: Of course. We started preparing for this project at the beginning of this year, around December or January. At that time, the market was not as hot as it is now, and similar projects are emerging almost daily. Seeing Circle’s performance in the public market, we realized that the traditional market’s demand for this type of theme far exceeds supply, with a large amount of capital eager to invest in it, which presents an interesting opportunity for us.
From a macro perspective, I have been concerned about the capital flow of altcoins in cryptocurrency over the past 18 months. The total market cap of altcoins peaked in 2021 and 2024 at nearly $1.2 trillion. This is a strong signal to me that there is limited global willingness to invest in these tokens, of which 99% are bubble tokens. The industry needs to mature, and to break through the $1.2 trillion market cap, it must attract equity market investors who handle large-scale funds.
What we value is not the short-term trading at a high premium on assets, but rather opening up a broader base of investors. Even providing token access at 1 times net asset value is better than being completely shut out of these markets. This is an interesting match, as there is strong demand for such themes in traditional markets, while the crypto market is facing liquidity issues, and our solution can address this problem.
Q2: The USDe asset is very exciting. When will trading start? How much funding has been raised in total? Can you share more details? Ethena Labs tweeted that this is the project with the highest ratio of cash to asset market value. Can you elaborate on this aspect?
Guy Young: The total scale of the project is approximately 360 million dollars, of which 260 million is cash. Our cash proportion is much higher than other similar projects, as many projects are merely tools for liquidity exit, with investors hoping to sell tokens in the public market after their investment. Our goal is to bring in new cash to solve liquidity issues. The funds raised by Ethena account for about 8% of the circulating market value and will be used to purchase tokens in the public market, while the second-ranked Hype accounts for less than 2%. This is very prominent in the market; relative to the scale of the underlying assets, our project size is large, and the raised cash will have a significant reflective effect on the tokens. For example, 500 million dollars has little impact on Ethereum, but it has a significant impact on our tokens.
Q3: The demand for pure equity exposure to stablecoins is strong, and the regulatory environment is becoming increasingly friendly, such as the passing of the Genius Act and the market’s enthusiastic support for Circle. Could you discuss the challenges Circle faces, such as the impact of declining treasury yields on your business?
Guy Young: Thank you for the question. I will explain the appeal of Ethena for public market investors and institutional audiences, as well as the operational mechanism and competitive advantages of USDe.
The use cases of stablecoins are very diverse, such as serving as trading collateral for centralized exchanges or providing payment and remittance channels in US dollars for developing countries. In the future, each issuer will focus on specific niche markets rather than trying to become a universal solution.
Ethena’s strategy is clear: we focus on use cases that are ten times better than those of other players. As a startup competing against giants with a market value of hundreds of billions, we do not believe we can win comprehensively, but instead choose to focus on savings use cases.
A dollar asset with a structurally higher return is a better savings tool compared to non-yielding assets. This advantage also extends to other scenarios, such as being used as collateral for perpetual contracts or embedding in DeFi applications to create new products. This is the niche market of Ethena and the area where we achieve growth.
In 2024, the average annualized return of USDe reached 18%, which is four times that of Circle’s interest income. Adjusted for returns, Ethena’s asset scale is equivalent to $28 billion, comparable to Circle. This means that we can compete with the giants in terms of income without a large balance sheet.
As for competitors, we see Tether as a partner rather than a rival. Many people do not understand that Ethena actually empowers global Tether holders. In centralized finance (CeFi), 70% of the perpetual contract market is denominated in Tether, and the $1 collateral flowing into Ethena translates to approximately 70 cents of Tether supply growth. Tether does not offer yields, as its returns are indirectly paid by the market through futures and basis trading.
Ethena has productized the basis capture use case of Tether in CeFi, creating new products. It can be said that Ethena is the “yield version” of Tether, and most of the collateral we hold is Tether itself, which significantly boosts Tether’s growth.
Q4: The audience may not be very familiar with Ethena, but could you briefly introduce how you generate returns?
Guy Young: The core strategy is cash arbitrage or basis trading: going long on the spot while shorting futures or perpetual contracts. The cryptocurrency market has financing rates, which can be simply understood as the capital cost of going long. These markets appreciate over time, and investors are willing to pay fees for leveraged long positions. Ethena profits by capturing the speculative premium in the derivatives market.
By analogy, all US dollar assets or stablecoins are a form of lending. Buying Circle’s USDC is akin to lending money to the US government in exchange for an IOU; purchasing Sky’s US dollar assets involves over-collateralized lending in DeFi with Ethereum; while USDe provides financing for long positions in CeFi. Different lending counterparts determine different rates of return.
Q5: During the 2021 cycle, the basis trading of some major coins reached as high as 50-60% for several months. However, now, with the increased liquidity in the futures market, the entry of professional fund managers and ETFs, the basis has significantly compressed. What dynamics have you experienced internally? With the launch of long-tail assets such as Solana ETF and the increasing opportunities for professional fund managers, how do you think this will develop?
Guy Young: The capital pools for ETF and CME (Chicago Mercantile Exchange) basis trading are starkly different from those in the cryptocurrency market. Institutions like Millennium, which require AA-rated custodians, are unable to allocate funds to the cryptocurrency market. As a result, traditional finance (TradFi) engages in substantial trading at CME, where credit risk is nearly zero, but cannot access the cryptocurrency market. This leads to a significant difference between the basis at CME and that of the cryptocurrency market, reflecting some of the credit risks associated with exchanges.
Data from 2024 shows that CME’s cash-adjusted basis is about 6.5%, which is 150 basis points higher than the yield on government bonds, while Ethena’s USDe yield reaches 18%, with a gap of up to 1000 basis points. Although CME supports these trades, it is more efficient through Ethena.
Many hedge funds are investing in Ethena because USDe is not entirely used for staking (sUSDe). When USDe is used as a currency in AMM (Automated Market Maker) or order book, the staking rate does not reach 100%, so Ethena’s yield is always higher than the yield from capturing the basis by oneself. Although the basis will compress over time, we hope institutional capital will flow into Ethena as it is a more efficient channel. This is one of our investment logics. Some criticize that the basis has dropped from 60% when we launched, but this is a natural phenomenon. Ethena continues to grow by lowering the capital cost of the cryptocurrency market to reasonable rates of traditional finance (such as 10-12%) instead of 20-30%.
Q6: People usually pay attention to the high financing rates of certain coins, but Ethena has lowered these rates, which may obscure the scale or degree of speculation for long positions. What are your thoughts on this?
Guy Young: That’s right. The market was more overheated before the emergence of Ethena, especially for BTC and ETH. Observing the financing rates of Hyperliquid is a good method. Currently, the financing rate of Hyperliquid is about 25%, while Binance is at 11%. There are two reasons: first, the retail capital flow of Hyperliquid is more natural, while centralized exchanges have more institutional investors; second, Hyperliquid does not have portfolio margin, meaning you cannot fully collateralize a $100 perpetual contract short with $100 of BTC.
Therefore, its financing rate needs to be adjusted to compare with CeFi. Ethena has not yet operated on Hyperliquid, so Hyperliquid reflects the real retail capital flow unaffected by institutional capital and Ethena, making it an ideal reference point for judging the true market heat.
Q7: Recently, the cryptocurrency sector welcomed a long-awaited event—the passage of the “Genius Act”, which is the first federal law targeting stablecoins. You announced a partnership with Anchorage, which seems to make you the first stablecoin compliant with the “Genius Act”. Can you talk about the “Genius Act”, your thoughts on it, as well as the details of this partnership and its significance for Ethena?
Guy Young: We are transitioning the issuance structure from an offshore BVI entity to USDtb being issued directly by Anchorage. Anchorage is the only federally regulated bank in the U.S. that deals with cryptocurrency, and they will launch a suite of products similar to providing “Genius services” for different issuers to meet compliance requirements. Our strategy is dual-track: by partnering with Anchorage, USDtb will comply with the “Genius Act” and can be used in any scenario in the U.S. that allows payment-type stablecoins; while USDe will primarily exist in the offshore DeFi market, outside of the regulated financial system in the U.S.
Both markets are important, but the excitement about entering the U.S. market lies in the fact that the primary use cases for stablecoins actually exist outside of the U.S. Americans can already access instant digital cash through applications like Venmo, just in a different form. The competition in the U.S. market is also fiercer, as money market funds coexist with stablecoins, limiting revenue potential. While we are excited about entering the U.S. market, offshore markets remain the most vibrant operating venues. Tether’s success proves this point, as they have focused on the offshore market from the very beginning.
Q8: I’m curious, the stablecoin market is very hot right now, and everyone is discussing them. It seems that every large company has its own stablecoin strategy, and there are many infrastructure startups, like Tether Chain or other things being built. What are your thoughts on this? You should have deep insights into the market. What is the most interesting thing in the stablecoin market right now? Which ones are overvalued? Which ones are undervalued?
Guy Young: I have a rather pessimistic attitude towards new issuers entering the market and competing with existing giants. The market is excited about this topic, but it is difficult to find a breakthrough point. Stablecoin products are highly commoditized, making it hard for startups to differentiate themselves from existing giants.
Stablecoins need to meet three conditions: they must be in US dollars, otherwise they will be out by the next day; in terms of liquidity, you cannot achieve Tether’s daily trading volume of 100 billion dollars on the first day; the third is returns.
If stablecoins are backed by government bonds, the profit margins will turn into a race to the bottom. Circle has already started this competition, sharing profits with companies like Coinbase. I have a negative view of the unit economics and business models of stablecoin issuers. Tether is an exception; they established an unshakeable position at a unique point in time. No one can replicate their success at that specific moment. I am pessimistic about the strategy of new issuers claiming to share 90% of profits; it is a tough road. To make the business model work, if you only earn 5 to 10 basis points in profit, you need a scale of $100 billion to become an attractive investment. Therefore, I am most pessimistic about this part of the market, even though we are also issuers of USD and stablecoins.
Q9: Previously, we discussed stablecoins. If $3.5 trillion in funds were to convert into liquid stablecoins, especially flowing into the crypto market, some of that capital might flow into Bitcoin, which is very exciting. The crypto market has performed well recently, with the ETH to BTC ratio returning above 0.03, outperforming BTC. Solana has also performed well. What are your thoughts? Will the market continue to rise? At what stage of the cycle are we currently?
Guy Young: In the long run, I still remain very bearish on ETH and other Layer 1 (L1) assets, believing they are the most overvalued financial assets in history. In the short term, the narrative around ETH has changed; it no longer competes with Solana for on-chain activity but is positioned as a tool to attract traditional financial capital, competing with BTC.
As long as these tools are trading at 2.5 to 4 times net asset value (NAV), the market will not decline. However, if the premium slides from 1.5 times to 1 times, it could signal the end of the cycle. When new tools stop being launched, the premium may collapse because existing tools need buying support from the equity market. If there isn’t enough buying support, the market could collapse. Currently, new capital is still flowing in, and market enthusiasm is high; for example, Saylor just increased the issuance scale from 500 million to 2 billion dollars, and the tools are still trading at a high premium, which may continue. However, we need to be vigilant for signs of a slowdown in new tools, as that could be a turning point for the market.
I won’t comment on my own project, but examples like Hyperliquid have already detached themselves from dependence on ETH or L1, relying on cash flow growth, like real equity-like assets. Altcoins need to mature, no longer just being beta versions of L1, but having independent income and users. In the future, 5 to 10 projects like Hyperliquid may be priced with equity investment logic, decoupled from L1. I believe BTC’s dominance should reach 90%, while other L1 valuations should drop to one-tenth of what they are now, with a few equity-like businesses standing out, like Coinbase and Robinhood have performed this year.
Q10: Regarding Ethena, the scale of USDe has reached 6.8 billion dollars. How large do you think the market can support? If everyone knows the returns of Ethena, how large can the perpetual futures market support?
Guy Young: The market potential is enormous. Currently, the open interest is about 110 billion to 120 billion USD, with a yield of 15-20%. The three main sources of cash flow in the crypto space are Binance equity, Tether equity, and futures market basis trading. Ethena accounts for 6-10% of the derivatives market, and I believe it should reach 20-25%, which is 20 billion to 30 billion USD, assuming the market does not grow significantly.
In December last year, when the financing rate reached 30%, Ethena’s scale had reached 28.8 billion dollars. If traditional financial institutions are involved, the scale could be even larger, with rates compressed to 10-12%. However, if L1 valuations decline, products like Hyperliquid and Ethena that rely on L1 will also be affected. A few projects like Pump make money through new token issuance and do not fully depend on L1 valuations.
