A crypto startup, Ethena, has recently secured $6 million in seed funding for its innovation stablecoin project. This funding round was led by Dragonfly, underscoring the increasing support for Ethena’s venture.
The importance of this milestone stems from Ethena’s unique approach to its stablecoin, called USDe.
Unlike other stablecoins projects, Ethena has learned from the challenges faced by projects like Terra and has revised a fresh method to ensure that USDe maintains its peg to the US dollar.
Ethena’s stablecoin achieves stability by using collateral provided by users and hedging price exposure through shorting Ethereum perpetual swaps.
By holding the equivalent amount of staked ETH and perpetual swaps, Ethena ensures that gains and losses from either asset effectively balance each other out.
In addition to the stablecoin, Ethena is also developing a digitally native internet savings bond denominated in USD. This bond generates yield by combining staked ETH and swapping margins, offering investors an opportunity to earn passive income.
Ethena aims to differentiate itself from previous attempts at building algorithmic stablecoin, such as Terra, which faced significant challenges and deviated from its peg to the US dollar.
Additionally, Ethena sets itself apart from established stablecoin leaders like USDC and USDT, which primarily rely on fiat-based assets like treasuries for backing.
While this traditional approach is considered safer by many investors, it remains closely connected to the existing banking system.
Guy Young, the founder of Ethena, emphasized that “In crypto, you’re trying to create a parallel financial system, but the most important financial instrument in the entire space (the stablecoin) is still completely tethered to the existing system.”
The inspiration for the creation of USDe came from a written piece by Hayes, which discussed the potential of a stablecoin supported by crypto derivatives, following the collapse of Terra.
Moving forward, Ethena has set its sights on fully launching its stablecoin and bond asset in the upcoming months, following the completion of the testnet phase in the third quarter.
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