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Is Arthur Hayes’ Ethena about to have a Terra-like crash?

Is Arthur Hayes’ Ethena about to have a Terra-like crash?

Arthur Hayes, co-founder of BitMEX and prominent crypto investor, backs the recently launched synthetic dollar project, Ethena (ENA), for USDe. However, experts discuss the risks of USDe having a similar fate to Do Kwon’s UST stablecoin, built on Terra (LUNA).

On April 2, Colin Wu interviewed Ethena’s founder Guy Young, introducing the newly created project to a broader public. Its relevancy comes mostly from the project being heavily backed by relevant figures of the cryptocurrency market. For example, Arthur Hayes, Binance, OKX, ByBit, and decentralized exchange representatives like Aave and Curve.

Following this interview, Andre Cronje, founder of Fantom (FTM) and Yearn Finance (YFI), posted some concerns on X (formerly Twitter). Cronje started the post by tracing a parallel with Terra’s project involving the dollar stablecoin UST, a famously failed algorithm-stablecoin.

Interestingly, the decentralized finance (DeFi) expert developer’s comments came from a position of questioning, not accusation, trying to understand the underlying risks of Ethena’s USDe.

What is Ethena (ENA) and how USDe works?

In summary, Ethena is a protocol built on Ethereum (ETH) that has a governance token, ENA. Ethena aims to be “the internet bond,” providing a synthetic dollar, USDe, and “internet native yield.”

For now, the project is accessible only through an “early access” invitation and currently offers a staggering 35.4% yield. According to, Ethena has a $1.9 billion in total value locked, with 118,510 early access users.

Ethena market data. Source:

Notably, the idea behind Ethena surged from a blog post by Arthur Hayes in 2023, called “Dust on Crust.” The USDe achieves dollar parity through short-selling Ethereum on centralized exchangesderivatives while providing Staked Ether (stETH) as collateral. 

“This strategic choice integrates two significant sources of crypto-native yield — staking and derivatives trading — into a single financial instrument.”

– Guy Young

What are the risks of Ethena’s USDe

Understanding the inherent risks of unstable systems like stETH’s liquid staking and Futures contracts trading is essential to evaluate Ethena’s.

Risks of stETH include potential smart contract vulnerabilities and the possibility of losing staked ETH due to validator misbehavior. Additionally, stETH may trade at a discount to the underlying asset, Ether, during periods of market stress, introducing liquidity risk.

As for Futures trading, every day, thousands of traders are liquidated from their opened positions due to the market’s volatility. Moreover, funding rate dynamics reward traders who bet against the trend, while punishing the opposite.

Therefore, using short positions as a hedge may work well during bull markets, but could quickly lead to a death spiral when bearish. The spiral is fueled by also using an unstable and high-risk asset as collateral: stETH.

Will Ethena’s USDe be the next Terra’s UST?

The liquidity risk similarities to Do Kwon’s protocol are notable, despite having meaningful differences. In particular, Terra used its governance token, LUNA, as a sort of collateral to keep UST’s peg to the dollar. This intensified the death spiral during a crash, as investors ended up with a worthless token when the system collapsed.

In the meantime, using Ethereum may protect Ethena’s system from the fragility of having a limited-demand asset. This is due to ETH’s value being independent of the synthetic dollar it is backing, slowing possible liquidity issues.

Yet, drastic changes in the market can still ignite sell-offs and tokens’ unstaking, leading to a possible depeg or further complications.

From another perspective, Terra was also strongly supported by prominent figures in the crypto space, while offering massive yields to attract speculators.

Nevertheless, it is impossible to know whether Ethena will be a huge success or a drastic failure. Investors engaging with USDe must understand the risks and make conscious decisions moving forward.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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