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  • Ethena Overview
  • How USDe Works
  • Genesis Story
  • Alternatives: Existing Stablecoins
  • Size of the Opportunity
  • USDtb
  • Ethena Network
  • ENA
    • Tokenomics
  • Video Guides
    • How to Buy USDe
    • How to Stake USDe
    • How to Stake ENA
    • How to [Un]lock positions
  • Solution Overview
    • USDe Overview
      • Delta-Neutral Stability
      • Delta-Neutral Examples
      • Scalability
      • Censorship Resistance
      • Regulatory Compliance
    • Protocol Revenue Explanation
      • Historical Examples
      • Rewards Mechanism Explanation
      • sUSDe Rewards Mechanism
    • Underlying Derivatives
      • Futures vs Perpetuals
      • Inverse vs Linear Contracts
      • Basis Spread
    • Peg Arbitrage Mechanism
    • Liquid Stables: Dynamic Allocation
      • Current Allocation Approach
    • Scenario Analysis
    • Risks
      • Funding Risk
      • Liquidation Risk
      • Custodial Risk
      • Exchange Failure Risk
      • Backing Assets Risk
      • Stablecoin-Related Risks
      • Margin Collateral Risks
    • Governance
      • Risk Committee
  • Backing Custody & Security
    • Overview
      • Off-Exchange Settlement in detail
      • Copper Clearloop Case Study
    • Real-Time Dashboards
  • Solution Design
    • Overview
      • Github Overview
    • Key Trust Assumptions
      • Matrix of Multisig and Timelocks
    • Minting USDe
      • Order Validity Checks
      • User Security Measures
      • Mint & Redeem Key Functions
      • Mint and Redeem Contract V2
    • Staking USDe
      • Staking Key Functions
      • User Security Measures
    • Use of Oracles
    • Hedging System
      • Internal Services
      • Managing Risk from dependencies
    • Reserve Fund
    • Key Addresses
    • Backing Asset Custody
  • API Documentation
    • Overview
  • Resources
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    • FAQ
    • Data Repository
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    • Terms of Service
    • USDe Terms and Conditions - EEA
    • USDe Terms and Conditions - Non EEA
    • USDe Mint User Agreement - Non EEA
    • Testnet
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  1. Solution Overview

Underlying Derivatives

Context

Ethena utilizes derivatives positions to buttress the synthetic USD value of the backing assets in most market conditions. This is achieved by being "delta neutral" through the use of an offsetting short derivatives position to the natural long spot position from backing assets.

In the subsections below, we go into what each term refers to and the key differences:

  • Futures vs Perpetuals

  • Inverse vs Linear Contracts

  • Basis Spread

Overview

Ethena trades derivatives across all major centralized exchanges that are supported by "Off-Exchange Settlement" providers.

At a high level, Ethena trades derivatives with a few motivations:

  • Ethena opens a short position when a user mints USDe.

  • Ethena closes a short position when a user redeems USDe.

  • Ethena closes/opens positions across exchanges to realize unrealized PnL.

  • Ethena algorithmically optimizes positions in the backing portfolio to account for risk.

  • Ethena algorithmically optimizes positions in the backing portfolio to account for the differences between the exchanges' derivative contract specifications & the capital efficiency available from each exchange.

It is important to note that not all exchanges offer the same derivatives contracts and there are often key differences between each. Ethena is also sensitive to the exchange-assigned backing assets value when using liquid staking Ethereum assets, such as stETH, to margin ETHUSD or ETHUSDT Perpetual positions.

Last updated 6 months ago

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