Inspired by Arthur Hayes's idea for a Bitcoin-based stablecoin, Kaiko analyst Conor Ryder quit his job and joined the newly launched Ethena project as Head of Research.

Conor Ryder. Source: Linkedin

There is still little known about either this Portugal-based startup or its founder and CEO, Guy Young, but last week Ethena's official Twitter account announced that the company had raised $6.5 million in funding from a group of investors led by Dragonfly. This pool of investors includes the author of the idea which so inspired Conor Ryder, Arthur Hayes.

The idea behind the project is to create a stablecoin that maintains its peg via a mechanism called delta-neutral hedging, by using perpetual futures contracts on crypto exchanges. In such a design, the gain from the inverse derivative compensates for any loss of value of the collateral.

Another feature of the proposed stablecoin is that it will be fully backed by a bond not linked to the traditional financial system. For this purpose, Ethena plans to develop the equivalent of a T-bill for crypto called Internet Bonds. Diverging a little from Hayes's Bitcoin maximalism, the project will initially focus on the Ethereum ecosystem, basing the 'Internet Bonds' on the platform's staking yields.

In Hayes's original concept, a group of 'authorized' centralized cryptocurrency exchanges would be responsible for issuing the stablecoin, holding collateral and listing hedging derivatives. Both Hayes and Ethena recognize that dependency on centralized parties is a potential point of failure, yet current DeFi mechanisms are rejected.

In its preliminary design thoughts, Ethena's Head of Research calls the DeFi ecosystem 'not sufficiently mature'. Instead, it intends to rely on centralized liquidity and promises to find a solution to segregate the collateral custody functions from the execution and settlement of the token.

With the current seed investment, the project promises to launch USDe in Q3 2023. This development will definitely go on our Observation watchlist.

To give a better feel for this project's scope and vision, we include excerpts from Ryder's manifesto, originally posted as a Twitter thread, along with his original image.

... I read the essay and resigned from my job days later to start working on bringing this vision to life: [...] We are setting out to create a parallel financial system. [...] Creating a crypto-native dollar is not going to be easy. No one ever said it would be. There might be a war with central banks along the way. Great fiat fortunes will no doubt be made and lost before we do. But I hope you come along for the ride with us"
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