Is Ethena just an overvalued hedge fund? What it aims to create is a vast CeDeFi ecosystem. (Background: Stablecoin issuer StablecoinX 'establishes Ethena reserves', raises $360 million with daily investments of $5 million, ENA jumps 13%) (Additional context: A comprehensive interpretation of Ethena: a new generation of dollar Federal Reserve in the crypto world) 'Stablecoin' is just the surface of Ethena. Let's take off the surface: You transfer funds to a trading company, which has a hedge fund that is risk-neutral (won't lose due to asset price fluctuations) and offers an annualized return of up to 10% with a large funding capacity. The net asset value of this fund product at launch is $1, accumulating returns as the net asset value updates. You can buy in at any time, but selling through official channels requires a 7-day wait. This trading company is called Ethena. For every $1 you deposit, you receive 1 USDe as a deposit certificate. The fund product is called sUSDe, with over 4.6 billion issued, and the net asset value of each sUSDe is $1.19. All customers' USDe and sUSDe are transmitted to an on-chain wallet and registered on the blockchain, transforming the trading company into an 'on-chain protocol'. USDe thus becomes a synthetic dollar stablecoin. The sUSDe token on the Ethereum mainnet. In the current hot narrative of 'stablecoins', there are more and more companies that operate with stablecoins as a shell while executing higher-risk trading strategies behind the scenes. Their products are often referred to as 'Stablecoins backed by derivatives'. However, in reality, the risks of these stablecoins are not comparable to those based on short-term government bonds, and whether they are truly 'stable' is a big question mark. For example, Ethena's trading strategy (which will be elaborated later) requires deploying funds in perpetual contract exchanges—previously, the centralized exchange Bybit suffered a theft of over $1 billion in ETH, and Ethena has a large amount of funds in Bybit. If the exchange faces a funding gap and stops withdrawals, the collateral behind USDe would actually be insolvent. Meanwhile, U.S. Treasury bonds are regarded as the safest investment, with the market almost presuming them to be 'zero-risk'. So why does Ethena take such risks by packaging its trading strategies as stablecoins on the blockchain? What are the benefits of this operation? The first is the 'crypto premium', because if we only look at Ethena from the perspective of a trading company, its valuation is 'overvalued'. Overvalued? Ethena meets the model of a 'hedge fund' in many aspects, including its revenue model. Revenue model Ethena's main source of income is 'funding fee arbitrage'. For example, Ethena uses part of the stablecoins deposited by users to buy ETH, then stakes it, and opens an equivalent short position in the exchange. The profits and losses of spot and contract offset each other, achieving Delta-Neutral (risk-neutral, profits unrelated to asset price fluctuations). Thus, the spot ETH position can earn an annualized staking yield of about 3%, while in neutral or bullish sentiment, the short contract position will continuously earn the funding fees paid by the longs. Idle stablecoins can also be deployed in protocols like Sky to earn returns. Multiple income streams combined can bring an 18% annualized return in 2024. As of July 18, Ethena's yield for 2025 is 7.1%. Ethena takes 20% of the strategy profits as protocol fees, with the remaining 80% as profits for sUSDe, equivalent to a 20% Performance Fee, which is very common in private hedge funds. So, based on this model, how much is Ethena worth? Traditional valuation models for private hedge fund companies (not publicly listed, like Citadel, Two Sigma) usually benchmark valuations at 5-15 times net income, with the multiples depending on the stability of funding and the replicability of the strategy. In the actual valuation process, investors mainly focus on several core factors: first is capacity, whether the fund has room to expand its assets under management (AUM); second is stability, whether it can continuously achieve stable annualized returns; and third is investor stickiness, including the lock-up period of funds and long-term retention rates. Ethena's annualized returns are affected by market conditions and are currently not stable. Specifically, the revenue related to management fees (Fee-related Earnings, FRE) is usually more stable and predictable, thus can be given a higher valuation multiple of 10–15 times; while performance fees (Performance Fees) are more volatile and generally only receive a lower multiple of 2–5 times. The final valuation is typically calculated using a hybrid model, such as 'FRE × 10 + Performance Fees × 3'. Ethena's current revenue model has only performance fees, with no management fee income. Furthermore, if the fund is in a rapid expansion phase—for instance, achieving a doubling of AUM per year—then the valuation will also include a growth premium, further raising the overall valuation level. Ethena's recent total locked value (TVL) has skyrocketed, which is a plus for it. However, considering its underlying strategies have a funding capacity limit (restricted by the market capitalization of crypto assets and the corresponding funding capacity of perpetual contracts), it is unwise to be overly optimistic about the growth of its hedging strategies. Ethena's current total locked value (TVL) is $13 billion, equivalent to an AUM of $13 billion. In the industry, valuations for fund management companies during acquisitions or investments are often calculated at 2%-6% of AUM. Even if calculated at 10%, the valuation would only be $1.3 billion, but Ethena is a trading company, not an asset management company, so this metric does not apply. Ethena's annual income is about $400 million, according to DeFiLlama. Based on the earnings of the past 30 days, Ethena's annualized earnings are $400 million, and based on a higher multiple of 15, the valuation should be $6 billion. The data used here is not conservative, as Ethena may not be able to maintain its current annualized earnings and growth curve. Ethena's ENA token currently has a fully diluted market cap of $9.7 billion, which represents a 60% premium compared to the above calculations. What makes its valuation 'overvalued' is that its token currently does not provide any substantial 'utility'. Value capture of the token Ethena has not yet activated the 'Fee Switch', meaning that currently all revenue from the Ethena protocol is unrelated to ENA holders. So what is ENA used for now? Staking ENA tokens can earn sENA tokens (unstaking requires 7 days). Besides the negligible annual interest rate of staking itself, sENA tokens can also earn Ethena's own point rewards and various ecological project point rewards. These projects have all committed a certain amount of their own tokens to sENA token stakers, including Ethereal (15%)...

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