Protocol Revenue Explanation

Sustainable & Transparent

The revenue generated by the protocol originates from three sources:

1. Staked asset consensus and execution layer rewards

   1. Just 6% of backing assets as of January 2025

2. Funding and basis spread earned from the delta hedging derivatives positions

   1. ~ 92% of backing assets as of the January 2025 (including staked assets)

3. Fixed rewards on Liquid Stables

   1. 7% of backing assets as of the January 2025

Summary The protocol revenue is generated from three sustainable, exogenous sources that offer positive exposure to the maturity and interest in the industry, as well as diversifying the risks associated with the sources of revenue.

1. Staking Ethereum

Since the move to proof-of-stake, holding liquid staking Ethereum tokens provides a variable income. This income is generated through:

1. Consensus layer inflationary rewards.

2. Execution layer fees paid to Ethereum stakers.

3. MEV capture paid to Ethereum stakers.

All of these sources of income are paid and denominated in ETH. While the expected inflationary rewards are more predictable at the Consensus layer, the Execution layer income is more volatile as it is dependent on the activity at the base layer.

In 2021 this income averaged above 6%, and this has trended towards 3% as the percentage of staked Ethereum has grown over time.

Staked ETH represents just 6% of the backing assets of USDe today.

2. Funding and basis spread earned from delta hedging derivatives positions

When minters provide assets in the process of minting USDe, Ethena opens corresponding short derivatives positions to hedge the delta of the received assets.

Historically due to the mismatch between demand & supply for exposure to digital assets, there has been a positive funding rate & basis spread earned by participants who are short this delta exposure.

For ETH perpetuals, while this earned funding rate is variable, in 2021 it returned 16%, in 2022 0.6%, in 2023 ~9%, and in 2024 returned ~13% APY on a open interest weighted basis. More stats on funding and basis for both BTC & ETH derivatives can be found in the next subsection.

3. Fixed Rewards on Liquid Stables

As of the December 2024, there is ~101m USDC that is earning a fixed reward rate paid for and distributed by Coinbase as a part of their loyalty program. Holdings are viewable onchain here.