Arthur Hayes, a crypto billionaire, and Dragonfly have led a $6 million funding round for Ethena’s stablecoin and bond token platform.

Arthur Hayes, a crypto billionaire, and Dragonfly have led a $6 million funding round for Ethena's stablecoin and bond token platform.

Ethena Secures $6 Million Investment to Launch Stablecoin and Bond Asset

Crypto startup Ethena has successfully raised $6 million in a seed funding round led by crypto venture capital firm Dragonfly and billionaire Arthur Hayes. The Portugal-based company plans to utilize the funds to launch its stablecoin and bond asset in the third quarter of this year.

The funding round witnessed the participation of various prominent players in the crypto industry, including BitMEX founder Arthur Hayes and his family office, Maelstrom. Other contributors to the funding round included Deribit, Bybit, OKX, Gemini, and Huobi, among others.

Ethena’s Vision: A Stablecoin and Digital Savings Bond Backed by Derivatives

Established earlier this year, Ethena is dedicated to developing a platform that combines a digital currency and savings bond concept. The startup aims to offer a stablecoin and digital savings bond that are backed by derivatives and maintain their value in relation to the US dollar, without relying on traditional financial systems.

The stablecoin, named USDe, will be fully collateralized and employ on-chain custody and settlement. Its value will be preserved through a hedging mechanism that utilizes user-provided collateral to bet against Ethereum using perpetual swaps. This strategy ensures that any losses or gains are balanced out, allowing the stablecoin to consistently hold its value at $1.

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“Ethena is building the holy grail of stablecoins: a coin that is truly stable, decentralized, and capital-efficient,” said Dragonfly general partner Tom Schmidt in a press release.

Ethena’s USDe: An Alternative to Infamous TerraUSD

Ethena has recently announced its new stablecoin, USDe, as an alternative to the infamous TerraUSD. TerraUSD was a so-called algorithmic stablecoin that was supposed to maintain a constant $1 value through a mix of algorithms and trader incentives involving a sister token called Luna.

However, in May last year, TerraUSD lost its dollar peg due to a wave of sell-offs in the crypto market. Although Terraform Labs managed to partially repair the peg by purchasing $2 billion UST, the continued sell-off drained those funds, hyperinflated UST’s sister token LUNA, and crashed the price of both LUNA and UST.

This collapse of TerraUSD prompted Arthur Hayes to propose a crypto derivative-backed stablecoin as a potential solution. In March this year, he suggested a design for a Bitcoin-backed stablecoin that would use exchanges to maintain its $1 peg. The proposed stablecoin would be based on a set of short BTC positions and USD inverse perpetual swaps, ensuring its 1:1 peg to USD through mathematical transactions between various entities involved.

Hayes emphasized that this approach allows for the creation of a USD equivalent without burdening more crypto collateral than it generates in fiat value, in contrast to platforms like MakerDAO.

With USDe, Ethena aims to provide a stablecoin that overcomes the challenges faced by its predecessors like TerraUSD. By utilizing derivatives and a robust hedging mechanism, Ethena’s stablecoin aims to offer stability, decentralization, and capital efficiency to a broad user base.

In conclusion, Ethena’s successful seed funding round and the launch of its stablecoin and bond asset signify the continued growth and innovation in the blockchain industry. With the development of USDe as an alternative to TerraUSD, Ethena aims to address the shortcomings of existing stablecoins and provide a truly stable and decentralized solution for global users. As the blockchain industry progresses, we can expect further advancements and breakthroughs in stablecoin technology.