The protocol generates yield for investors by shorting bitcoin and ether derivatives in a"carry trade," but funding rates have turned negative over the past weeks.
Crypto yield protocol Ethena, which skyrocketed earlier this year to over $3.6 billion in deposits, faced its biggest test as crypto markets cooled off and investors pulled the funds that backed its USDe synthetic dollar token. Even so, USDe held steady to its $1 peg.shows. That's a 27% decrease in the token's supply. The protocol's governance token, ethena , has tumbled 85% from its April high.
"Lower funding rates makes it less attractive to hold and stake USDe," Julio Moreno, an analyst at CryptoQuant, said in an interview with CoinDesk.as backing assets, pairing them with an equal-value short perpetual futures position on exchanges. Perpetual funding rates are usually positive, which means Ethena's USDe generates revenue on its backing derivative assets.
The price of USDe remained stable at its $1 peg during the outflows, and the subsequent unwinding of trading positions to meet demand for withdrawals happened"all orderly with zero issues experienced on the US dollar peg," Young added.Ethena keeps a"rainy day" fund, known as the reserve fund, to pay for funding rates if needed.