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Underlying Derivatives

Context

Ethena Labs utilizes derivatives positions to ensure the synthetic USD value of the collateral remains constant in all 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 Labs trades derivatives across all major centralized exchanges that are supported by "Off-Exchange Settlement" providers.
At a high level, Ethena Labs trades derivatives with a few motivations:
  • Ethena Labs opens a short position when a user mints USDe.
  • Ethena Labs closes a short position when a user redeems USDe.
  • Ethena Labs closes/opens positions across exchanges to realize unrealized PnL.
  • Ethena Labs algorithmically optimizes positions in our portfolio to account for risk.
  • Ethena Labs algorithmically optimizes positions in our 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 Labs is also sensitive to the exchange-assigned collateral value when using liquid staking Ethereum assets, such as stETH, to margin ETHUSD or ETHUSDT Perpetual positions.
Last modified 1mo ago