After a weekend, Bitcoin fell below $60,000 yesterday and continued to fall to $49,000 today, a 24-hour drop of 18.5%. Ethereum plummeted 25% and fell below $2,100. The crypto market fell across the board.

Related reading: "Bitcoin plummeted, 25% in 7 days, is the bull market still there? "

The market crash made the originally cold crypto market worse, and the DeFi field, which had no improvement, was hit hard. According to DeFiLlama data, Ethena Labs' revenue has shrunk significantly since March, and its current monthly revenue is only $1.03 million, which is about 96% less than the peak of $26.26 million. If calculated based on current revenue (revenue in the past 30 days x 12), Ethena Labs' annual revenue is only $12.55 million.

The stablecoin USDe launched by Ethena Labs currently relies on collateral BTC, stETH and its inherent income, while creating short positions in Bitcoin and ETH to balance Delta and using perpetual/futures funding rates to maintain anchoring and provide income. That is, using the income of the spot to hedge the loss of one short order to achieve balance, but you can harvest ETH pledge income and short order funding rates.

Bitcoin Ethereum funding rates are both negative

For Ethena to succeed, the demand for long leverage must remain high to keep the funding rate high, as this is the source of most of the project's income. Otherwise, the protocol needs to pay fees to CEX to maintain its contract positions.

That is to say, the USDe model can only work well when the market is in a bullish mood. The bull market in early 2024 drove high short fees, which supported the adoption of USDe in early 2024, but according to official data, the supply of USDe decreased slightly in April, and then increased rapidly until the beginning of July, when the cryptocurrency market fell into a downward trend and the supply of USDe continued to decline.

Image source: Ethena Labs

Overseas KOL @OP Michael recorded the overall position fee rate of Ethena on April 13 when market sentiment was extremely pessimistic. At that time, the comprehensive fee rate of ETH was -9% and the comprehensive fee rate of BTC was only 2%. The protocol and sUSDe holders have begun to face losses.

Due to the poor performance of Ethereum, in order to prevent further decline in returns, Ethena's pledged assets have gradually shifted to Bitcoin. Official data shows that the current TVL of the Ethena Labs platform is US$3.18 billion and the reserve funds are US$46.5 million. 48% of the collateral is BTC, 30% is ETH, 9% is ETH LST, and 13% is USDT.

Image source: Ethena Labs

However, the market has rapidly adjusted back, and the market has led to a general decline in crypto assets, and the amount of long orders has increased. According to Coinglass data, the total amount of liquidation in the past 24 hours has reached 1.02 billion US dollars, of which long orders have been liquidated for 889 million US dollars and short orders have been liquidated for 130 million US dollars. The interest rate of short-selling funds continues to decline. According to the official website of Ethena Labs, the average fee rate of Bitcoin has dropped to -4.34%, while the average fee rate of Ethereum has reached -28.34%.

Source: Ethena Labs

Although continuous negative fees in a year are usually extremely rare, the decline in Ethereum has led to the liquidation of staked Ethereum. According to PeckShield monitoring, several ETH whales have been liquidated today, and their value exceeds millions of dollars. With the sudden change in the situation, ENA has also ushered in a certain amount of selling pressure. According to CoinMarket data, ENA briefly touched $0.232, a 24-hour drop of 21%.

Dune data shows that USDe has experienced destruction of tens of millions of dollars on multiple occasions in the past month, which means that the collateral has been redeemed in large quantities. From the supply of sUSDe (USDe pledge certificate token), we can also see that in the past week, nearly 60 million US dollars of sUSDe have been unpledged

Affected by many factors, USDe has also fallen. According to CoinMarket data, its currency price briefly touched $0.997.

Can Ethena not run in a bear market?

During the bull market, the staking income and short funding rate achieved a considerable yield for USDe. According to official data, Ethena's yield was quite amazing in March, with the highest protocol yield and sUSDe reaching 113.34% and the lowest reaching 8.55%.

However, as the market continued to fall, the protocol yield briefly fell to -2.09% in mid-April, and then immediately rebounded, reaching highs of 22.77% and 77.58% respectively. However, since June, the Ethena protocol yield and sUSDe yield have both fallen below 20%. (Due to the delay in Ethena’s official data update, only data up to July 31 is included)

Image source: Ethena Labs

Objectively speaking, Ethena's mechanism is a major innovation of DeFi. Rune Christensen, founder of MakerDAO, once considered allocating 600 million DAI to USDe and pledging USDe (sUSDe) through the DeFi lending protocol Morpho Labs, but the plan was opposed by many parties.

Related reading: "ENA's market value exceeds $1 billion, but some people worry that it is creating the next black swan"

Ethena has made TVL exceed billions of dollars in a very short time, and its rapid growth has caused panic in the community. The views of the opponents are nothing more than questioning USDe's ability to resist risks in the environment, and believe that its value is greatly affected by market conditions. Among them, analyst Duo Nine (@DU09BTC) once pointed out that it is only a matter of time before USDe depegs, and the larger the bubble, the greater the probability of this happening.

Ethena was born at the last moment of the bull market, but the ensuing bear market continues to test Ethena's ability to withstand pressure. Now the funding rates of Bitcoin and Ethereum are negative, and the annual revenue of the protocol is also shrinking. Whether Ethena can withstand the huge market correction and prove the availability of its mechanism still needs time to consider.

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