Underlying Derivatives

Context

Ethena utilizes derivatives positions to buttress the synthetic USD value of the collateral 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 collateral value when using liquid staking Ethereum assets, such as stETH, to margin ETHUSD or ETHUSDT Perpetual positions.