Yield Explanation

Sustainable & Transparent

The yield generated by the protocol originates from two sources:

1. Staked asset consensus and execution layer rewards

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

Summary 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.

1. Staking Ethereum

Since the move to proof-of-stake, holding liquid staking Ethereum tokens provides a variable yield. This yield 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 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 3-4% as the percentage of staked Ethereum has grown over time.

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.

While this earned rate is variable, in 2021 it yielded ~18%, in 2022 ~-0.6%, in 2023 ~7%, and in 2024 so far it has yielded 18% APY on a volume-weighted basis.