The yield generated by the protocol originates from two sources:
Staked Ethereum consensus and execution layer rewards
Funding and basis spreadearned from the delta hedging derivatives positions
The protocol yield is generated from two 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 yield.
All of these sources of yield are paid and denominated in ETH. While the expected inflationary rewards are more predictable at the Consensus layer, the Execution layer yield is more volatile as it is dependent on the activity at the base layer.
In 2021 this yield averaged above 6%, and this has trended towards 5% as the percentage of staked Ethereum has grown over time and activity has fallen since 2021.
2. Funding and basis spread earned from delta hedging derivatives positions
When minters provide assets in the process of mintingUSDe, Ethena Labs 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.
While this earned rate is variable, in 2021 it yielded ~18%, in 2022 ~-0.6%, and in 2023 ~7% APY on a volume-weighted basis.