Strategy
Ethena Risks + Airdrop Strategies
Season one for Ethena is over, and Season Two started when "Sats" were introduced as a way to farm $ENA.
We received lots of positive feedback on our last Ethena article. If you missed it, here's the link to it.
In the article, we listed many great aspects of Ethena, such as its unique ability to become one of the most profitable protocols in the space.
Today, though, we wanted to dive deeper into Ethena's risks. We're not playa haters but it's important to look at cons and risks to become a clear thinker.
If you are willing to take on risks associated with such a protocol, we will also cover additional strategies to leverage your sats in Ethena Season Two.
The risks around Ethena
From the start, the team has always been clear about the various degrees of risk associated with Ethena.
ConorRyder - Head of research of @Ethena Labs on X
The most significant risk is that stablecoin protocols like Ethena involve many "ifs" in the correct functioning of the system.
Let's list some.
Market Risks:
On the long side of the trade (stETH)
The protocol is fine if the short side takes a negative turn; they absorb the losses from the stETH yield.
If this isn't the case, stETH as a collateral will shrink.
ConorRyder - Head of research of @Ethena Labs on X
.
On the short side of the trade (ETH):
Everything is okay if funding rates stay positive.
This means those who open long positions on ETH pay those who short it. Basics of funding rates 101.
Here, the data suggests that almost 90% of the time, funding for this trade is positive.
This is where most of the USDe yield is coming from.
Position Risks: Historical data does not take Ethena's positions into account.
The weight of the OI coming from Ethena on the short side is already reaching substantial levels.
The bigger Ethena's position on the short side, the more likely it is that average funding rates will fall. Keep in mind their current TVL is in the $2.5B range.
So, different stress tests need to be conducted here.
The team recently announced that they will onboard BTC to back USDe.
They do a great job explaining the reason behind this, and you should read the thread above.
Depeg Risks: Despite this never having happened, it's something to consider.
If the LST collateral suffers a significant slash or a depeg event, the whole Ethena position could be liquidated.
A closing note about risks
We think DeFi needs its own form of "synthetic dollar," and with every revolutionary product come many risks.
If you read their document, the team lists even more risks about Ethena, giving clear examples and workarounds.
Doc Page
The team has executed every initiative flawlessly so far. However, we remain curious to see Ethena in action during a stress test period.
It does give me confidence that a protocol is more than aware of all the risks, and proactively tries to address them.
Pendle and Ethena's strategy
If you were already involved in season 1 of Ethena, congrats.
You are now getting boosted rewards on your sats for the Ethena season 2 campaign.
I still hold a small chunk of USDe on the Ethena mainnet from season 1.
Here's what I am doing to increase my leverage for the season 2 sats campaign.
- I swapped my USDC for USDe on ARB.
- I bridged USDe from ARB to Mantle.
- I realized this process had a smaller impact on my slippage.
- LPing my USDe on Pendle through their LP USDe.
Quick explanation of the above pools:
YT USDe: The easiest way to explain this is to say you are using capital to buy as many Ethena sats as possible.
At the expiration date, your initial capital will be worth 0.
You are betting that your initial capital will be worth less than what you get from the Ethena campaign.
LP USDe: You retain all the sats points from USDe + USDe yield + $PENDLE incentives.
Please remember that the APY shown on the screen is only valid if you stake your $PENDLE.
PT USDe: You forego all your airdrop bonuses and earn the ridiculous APY displayed on the screen.
As of the time this was written, Pendle announced they are going to open more USDe pools.
This also means avoiding bridging onto Mantle and doing everything on Arbitrum.
I hope you guys enjoyed this. You guys gave us some feedback you wanted more DeFi strategies, and we thought this was a good one to share.
Protocol Update
Solana's Congestion Pains
Solana is facing another test.
If you've been trying to use Solana recently, your transactions have probably failed. You might have had to make several transactions to make a successful one finally.
Why is this happening? The roaring network activity on Solana. Everyone and their bots are trading memecoins on Solana.
Solana nodes, which are supposed to process these transactions, started getting overwhelmed, which resulted in some of the transactions being dropped.
In these cases, users were forced to re-submit transactions. But instead of manually re-submitting transactions, users created bots to submit their transactions. Theoretically, this increases the chances of your transactions getting processed.
But once everyone started creating bots, the network congestion increased even further. And the difficulty of getting transactions processed increased as well.
This hurts normal users the most. Humans can't submit transactions at the same rate as bots.
Below is an image from @0xBreadGuy that explains the situation.
What can you do? If you have the technical chops, you can create a bot to submit transactions on your behalf.
Otherwise, you can try repeatedly submitting transactions until one is processed. This might be a nice opportunity for you to practice your patience, lol.
But if you are like me, you won't like either of those options. In that case, you'll have to wait for Solana to ship a solution.
There are two steps to the Solana solution: a temporary one and a permanent one.
The temporary solution is projected to go live by April 15th. It'll fix some of the implementation issues. I don't know the exact technical details, but bots will eventually break it.
The long-term solution is fee-markets. As of now, there's nothing to disincentivize bots from constantly spamming Solana. Having fees increase in times of greater demand will incentivize users to not use bots to spam the network.
But, Solana can't fall into the trap of Ethereum's high gas fee issues either. So, the Solana team is working on a system called "local fee markets." There isn't an ETA for it yet. But, it'll be a more sustainable solution.
What's next for Solana? Many are predicting a Solana doom. But I don't see it.
Solana has a loyal community. They won't stop using it just because they had a bad user experience for a few days. As a result of this challenge, Solana is improving their processing capacity. And Solana will be better for it.
So, once the temporary solution has been shipped, users will be back singing Solana's praises. But this is a huge chink in Solana's armor.
The Final Lap of Restaking Points is Here…
We are watching the birth of a new DeFi sector with restaking and LRTs.
What is restaking? It is a pretty simple concept. You take your staked ETH and restake it. In return for yield, you promise to provide certain services to the new protocol. If you fail to provide those services, you might lose some of your staked ETH.
Restaking is a complex process. And normies can't do it easily. Liquid Restaking Tokens (LRTs) remove this complexity for users. Normies will get LRTs (like $rsETH) for their $ETH. Users will receive restaking rewards through these LRTs without doing any work.
EigenLayer created this sector. It is the first platform that connects restakers and protocols. Now, EigenLayer has a few competitors.
- Picasso has built a restaking layer on Solana.
- Babylon is a Cosmos chain for restaking for $BTC.
- Karak Network is trying to be a restaking layer for every crypto asset and every chain.
(Btw just Karak raised $48m at a $1b valuation. You're quite early if you want to farm potential airdrops. It's invite only, so here are some codes)
We first discussed restaking on February 2nd, 2023. The protocols weren't even live then. But now, restaking has become the fifth-largest sector with over $13.7 billion in Total Value Locked.
The day before yesterday, EigenLayer launched the mainnet of EigenLayer and EigenDA. So, many are predicting that the EigenLayer token launch is just around the corner. Liquid Restaking Protocols will also airdrop millions to airdrop farmers.
The most obvious play here is to farm these LRT protocols. They accumulate both EigenLayer points and the LRT points.
Here are some top LRT protocols:
Holding these LRTs on L2 is better. For starters, L2s are cheaper. On top of that, some L2s have their own points program. You can stack more points by depositing LRTs into these L2s.
- Mode Network is giving boosted points on LRT tokens.
- You can deposit LRTs into Zircuit (a new L2) to earn their points.
- Bridge weETH to Manta Pacific to earn extra points from Manta and its ecosystem projects.
- Swell L2 has enabled pre-launch deposits. Deposit there to earn airdrops from Swell and projects on it.
Points in the restaking sector started a while back. So, you might feel that it is already overfarmed and that you are late to the party.
In that case, you can buy Yield-Tokens of LRTs on Pendle. This is a way to get leveraged exposure to points.
Pendle separates LRTs into PTs and Yield Tokens. For the price of a single LRT, you can buy multiple yield tokens. You will receive the points distributed during the time you hold yield tokens.
This is the way to take leverage on LRT points. In the screenshot below, you can take 9.37x leverage. You can buy the LRT YT tokens here.
There are a few things you need to be aware of.
- The price of yield-tokens tends to drop.
- The value of yield-tokens will be zero at the date of maturity. You can't sell it afterward.
- The value of potential airdrop from these points can be less than the cost of YT.
So, you are betting that the value of your points will be higher than the cost of Yield-Tokens. Here's a spreadsheet to help you calculate the value of points. It'll also help you compare the ROI of different YT tokens.
Yield trading is a fairly complex area. If want to study it more carefully before investing, here's the guide from Pendle.
🚀 DeFi Catalysts
Synthetix v3 is live on Base. The v3 upgrades include NFT-controlled accounts, gradual liquidations to reduce MEV risks, and more.
Manta Network introduced a suite of AI Tools for training, deployment, and inference on Manta Pacific. It might help them ride the AI narrative.
PancakeSwap has partnered with Stryke (formerly Dopex) to introduce CLAMM Options Trading. It'll allow users to seamlessly trade options, earn premiums, and earn swap fees.
Nftperp is now open to everyone without invite codes. They are planning a new incentive program, but the current activities will also be counted.
Immutable introduced Immutable Nexus, an ecosystem for gaming chains. This will allow AAA studios to create their zk-chains with Immutable support.
🪂 Airdrop Alpha
deBridge started their points program. Making cross-chain transfers and referrals is the easiest way to earn points. Here's my referral link.
Zeta Markets released details of its token, $Z. They've reserved 10% of the token for airdrop. The eligibility criteria will be released soon.
Saga is going to airdrop more $SAGA tokens to Saga stakers. The first snapshot will be taken in April.
GATA Hub RollApp is the next chain that is going to airdrop tokens to $DYM stakers. It'll try to be a comprehensive yield hub within Dymension ecosystem.
📰 Industry News
Andre Cronje is working on a framework to launch, support, and cultivate community-safe meme coins on Fantom
Avalanche Foundation launched the Icebreaker program. It'll unfold in phases. And the first phase will focus on Liquid Staking Tokens.
Uniswap has shipped UniswapX on its front end. It will smartly route your trade to give you the best price.
Fantom announced $USDCE.e as its canonical stablecoin. USDC.e on Wormhole is bridged from native $USDC, located in a smart contract on Ethereum.
Oyster Labs and TON introduced the Universal Basic Smartphone (UBS). It claims that it'll empower and reward users in many ways.
🧠 Twitter Alpha
- Hong Kong regulator approving spot bitcoin ETFs?
- ETH explained to institutional investors from @nshalek
- Andre Cronje on a safer $FTM environment for Meme coins
- Uniswap thoughts about receiving a Wells notice from the SEC
- The new joiner of Crypto thesis
😂 Meme
Until next time,
Edgy
p.s. Protect yourself
Today's email was written by Edgy, Yayya, and Lorenzo.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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