Ethena | A Synthetic Dollar + High-Speed DEX via Ethereal

Introduction

Ethena and Ethereal are two complementary projects in the crypto space that aim to “deliver innovative financial services without relying on centralized banking systems.” In particular, Ethena uses a futures-based mechanism to maintain a price of around one dollar for its stablecoin known as “USDe,” dubbed a “synthetic dollar.” Meanwhile, Ethereal envisions using USDe as the base currency for trading, offering users a fast and decentralized DEX (decentralized exchange). This detailed project overview will explain the background, mechanisms, strengths, and vision of both.

1-1. Problems with Existing Stablecoins

Stablecoins have become an indispensable part of everyday crypto usage. Major coins such as USDT (Tether) and USDC (USD Coin) use off-chain assets like USD deposits and government bonds as collateral, aiming for a 1 token = 1 dollar value. However, these involve holding assets in bank accounts, which introduces counterparty and regulatory risks (e.g., the issuer may freeze assets). They are also less accessible in regions without bank infrastructure.

Hence, demand has grown for “a stablecoin fully backed by crypto assets and operable in a decentralized finance (DeFi) context.” DAI (MakerDAO) is an early example of a crypto-backed design, but it is relatively complex, and pursuing yield often involves risk trade-offs.

1-2. Tensions between Centralized and Decentralized Exchanges

Not just stablecoins, but the form of exchanges themselves heavily influences crypto adoption. Centralized exchanges (CEX) like Binance and Coinbase offer strong liquidity and fast order processing, attracting many users. However, assets are deposited with the operator, so users face risks of withdrawal freezes or hacking incidents.

By contrast, decentralized exchanges (DEX) use smart contracts so that users keep custody of their own assets, reducing hacking and operator risks. But on conventional blockchains, throughput is limited, resulting in slower execution and less robust order functionality, which has often turned off traders.

2-1. How the Synthetic Dollar USDe Works

Ethena is a protocol that aims to create a stablecoin called USDe, pegged to the US dollar via crypto assets and a futures-based approach. Specifically, it uses a “delta hedge” involving holding the underlying spot asset (like Ethereum) while taking an equivalent short (sell) position in futures, neutralizing price fluctuation risks.

If the market rises and spot asset values increase, the short position would incur an equivalent loss, keeping the overall value stable in dollar terms. Thus, it can approximate a $1 value without direct fiat collateral.

Additionally, Ethena’s design accrues staking rewards from the spot asset or earns funding fees from futures (depending on long/short demand), generating yield. This setup can offer not only peg maintenance but also high yields for those who stake sUSDe, a unique aspect of Ethena.

2-2. Bank-Free and Decentralized Design

Unlike USDC or USDT, Ethena does not require placing collateral assets in traditional financial institutions. By employing crypto assets and derivatives markets instead of bank accounts or government bonds, it avoids “asset freezes by banks” and “fiat liquidity shortfalls.”

This decentralized approach is globally accessible, facing fewer regulatory shutdown risks. On the other hand, it relies on the stable operation of futures exchanges (often centralized), which is a critical dependence. Risk management strategies have therefore gained attention.

2-3. USDe Yields and Staking

USDe holders can stake through Ethena to receive “sUSDe” tokens and participate in protocol revenues (futures funding rates, staking yields, etc.). During bullish conditions, some users have experienced annual yields exceeding 20–30%. This high return potential, surpassing bank deposits and conventional stablecoins, has drawn attention.

However, if funding rates remain negative (short side pays) for extended periods, protocol revenues drop, reducing staking returns. Users must recognize such variability when engaging in these products.

2-4. Collaboration with BlackRock and UStb

In 2024, Ethena partnered with U.S. asset management giant BlackRock to unveil a new stablecoin called “UStb.” UStb is backed by a tokenized money fund (BUIDL) and targets institutional investors looking for a stable currency reminiscent of traditional finance.

By developing both the crypto-native USDe and the RWA (Real World Asset)–backed UStb, Ethena aims to address diverse user needs and expand the entire Ethena ecosystem.

3-1. A High-Speed DEX as an Application-Specific Chain

Ethereal is a high-speed decentralized exchange (DEX) focusing on Ethena’s USDe. Unlike typical AMMs (Automated Market Makers), Ethereal plans to use an orderbook approach and aims for extremely fast settlements on a specialized L3 (Layer 3) chain.

Generally, Ethereum mainnet or L2 solutions can’t match CEXs in execution speed due to block interval constraints, limiting liquidity and order features. Ethereal envisions building an app-specific chain capable of processing tens or hundreds of thousands of orders per second, targeting <20ms latency, aiming for near-CEX trade experiences.

Deposit to Ethereal and Earn Points

3-2. Benefits of USDe as Base Currency

A major feature is that Ethereal’s trading pairs use USDe as base currency. Users deposit USDe as margin, earning protocol revenue (futures funding fees, staking rewards on ETH) from Ethena while trading. Hence, margin is not just “sitting idle” but can generate yields even as it’s used for leveraged or futures trades.

Additionally, Ethena itself executes USDe hedge trades on Ethereal, potentially attracting large liquidity from the start, improving orderbook depth and narrowing spreads.

3-3. Balancing Self-Custody with High-Speed

A key advantage of DEXs is self-custody, where users keep their private keys. On Ethereal, users connect personal wallets and maintain full control of assets during trading. Meanwhile, many existing DEXs are limited by on-chain constraints, causing slower orders and higher gas fees.

By running on an exclusive chain, Ethereal aims to minimize gas fees near zero, implementing an on-chain orderbook at speeds comparable to CEX. This may enable high-frequency trading and pro-level algorithmic orders, tapping an untapped segment for DEXs.

3-4. Future Expansion and Multi-Asset Support

Ethereal doesn’t just plan to offer BTC/USDe or ETH/USDe futures. Its goal is to become a platform for “comprehensive on-chain financial services,” including decentralized lending and options trading.

Ethena’s ecosystem includes iUSDe (a KYC-compliant version for institutional investors) and bridging with other chains. If successful, it could foster a high-volume, high-speed derivatives marketplace without requiring CEX, opening a new era of advanced on-chain trading.

4-1. Positive Cycle of Liquidity and Yield

For Ethena, placing large hedge trades on Ethereal benefits DEX liquidity, thickening orderbooks and tightening spreads. This improved user experience on Ethereal could attract more traders, raising fee revenue and boosting overall protocol stability in a virtuous cycle.

Ethereal users, in turn, can earn yields on the same synthetic dollar (USDe) used as collateral, enabling “stable asset investment + trading” in a single platform.

4-2. Bridging Traditional Finance

With ties to BlackRock and the introduction of UStb, Ethena/Ethereal envisions capturing not just DeFi users but also institutional and traditional finance capital. USDe’s decentralized approach eliminates reliance on banks, while tokens like UStb can bring in the security and familiarity of real-world assets, broadening investor appeal.

On Ethereal, KYC-compliant tokens such as iUSDe could let regulated institutions trade on a high-speed DEX, possibly funneling large liquidity beyond DeFi’s usual scope.

5-1. Market Risk Tied to Futures

Ethena’s USDe fundamentally depends on short positions in futures for hedging. If key futures exchanges face regulation, or if funding rates remain negative for a long stretch, protocol revenue—and thus staking returns—could be squeezed.

Additionally, since the actual futures trades rely on centralized exchanges, if those fail or get hacked, retrieving assets becomes problematic. While Ethena aims to mitigate off-chain settlement risks, achieving full decentralization may require further innovation.

5-2. Regulatory Risk

Regulators in the US and elsewhere are scrutinizing stablecoins and derivatives. Ethena/Ethereal’s high-yield dollar-based products could be deemed securities or unregistered exchanges. This might lead to geo-blocking or mandatory KYC.

Furthermore, working with traditional financial giants like BlackRock boosts credibility but also imposes “heavier compliance requirements.”

5-3. Technical Risks

Ethereal’s L3 chain, cross-chain bridges, and the complex smart contracts linking spot and futures assets all pose technical challenges. If contracts contain bugs, or if hacks or unexpected system failures occur, it could result in asset drain or peg breaks.

Projects handling large amounts of capital are prime targets for attackers, so thorough security audits, bug bounties, and transparent community oversight are crucial.

6-1. “Access Dollars without a Bank”

Ethena’s synthetic dollar could be accessible without a bank account, letting anyone worldwide hold or send a dollar-pegged value with only a blockchain wallet. With fewer geographic or regulatory hurdles, it can serve as a global financial inclusion tool.

6-2. A High-Speed DEX Experience beyond DeFi

Ethereal aims to redefine DEX by enabling high-frequency and large block trades typically unfeasible on existing chains. If a decentralized orderbook can match CEX-level usability, day traders and institutions reliant on CEX might shift to DeFi.

Additionally, using USDe as collateral yields a “hybrid approach” of generating returns while trading—an appealing new dimension.

6-3. Major Capital Influx and Ecosystem Growth

With BlackRock and institutional entrants, large capital pools beyond prior small DeFi communities may enter, further boosting liquidity and user experience. Ethereal could evolve into a comprehensive trading platform (futures, options, lending) serving both retail and professional traders.

Ethena’s synthetic USDe aims to hold a $1 peg using a novel approach—hedging crypto spot exposure with futures—without relying on banks. Building on that, Ethereal uses USDe as the base currency for a high-speed orderbook DEX comparable to CEX in liquidity and functionality.

By working in tandem, the two projects propose a threefold value: “high-yield stablecoin,” “self-custody security,” and “fast, low-cost trading infrastructure,” bridging DeFi and traditional finance. Yet reliance on futures, regulatory uncertainties, and technical challenges remain.

Still, the possibility of bankless dollar access offered by Ethena and a CEX-like DEX experience through Ethereal strongly resonates as the next big step for the crypto industry. For intermediate crypto users, engaging with these projects—via airdrops or staking—offers a chance to learn advanced DeFi mechanics and gain early experience in a promising ecosystem. Observing their development progress and regulatory environment, you can assess your own strategies for involvement.

Airdrop Procedure

1. Use this link to mint USDe with USDC
2. Stake USDe on Ethena and/or Pre-Deposit on Ethereal
3. Use USDe for staking in other project components

Official instructions and videos are here

1. Use this link to mint USDe with USDC
   
2. Stake USDe on Ethena and/or Pre-Deposit on Ethereal
   
3. Use USDe to stake in other project components

Official instructions and videos are here