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On The Brink with Castle Island


Oct 9, 2023

Guy Young, the founder and CEO of Ethena, joins the show to talk crypto-backed stablecoins. 

  • How Ethena began with an Arthur Hayes blog post
  • The origins of synthetic stablecoins on Bitmex
  • The difference between Hayes’ Nakadollar and the Ethena design
  • Why synthetic stablecoins have failed in the past and how Ethena addresses this
  • How staked ETH as the underlying collateral opens up a new design space
  • How Ethena mitigates their exposure to exchanges with off-exchange custody
  • Guy’s backstory and entrance into crypto
  • Why the circumstances are favorable for the success of a synthetic stable today
  • Why the short leg of the Ethena position has to rely on CeFi for now
  • Where the yield from ETH positive funding ultimately comes from
  • Limits to scale on Ethena on the short leg of the trade and ETH staking
  • Guy’s explanation for where the yield from being long ETH comes from
  • Correlation dynamics between the ETH yield and the funding rate
  • Why it’s important that crypto yields are somewhat negatively correlated with tradfi yields
  • What protects the system when funding flips negative?
  • How the system can react to constraints in ETH funding and ETH staking
  • The possibility of adding Bitcoin as a collateral type
  • Why Ethena distinguished the stablecoin and the yield-bearing component
  • Rebasing versus accruing yield tokens
  • How they think about different stETH derivatives
  • Ethena versus stETH-backed overcollat stablecoins
  • Why the supply of stablecoins is shrinking
  • Will major stablecoin issuers become interest bearing?
  • Ethena’s regulatory strategy
  • The BUSD security analysis from the SEC and how interest bearing affects that
  • Why end users deserve yield in exchange for taking on the counterparty risk of holding a stable
  • Why Guy is excited by Paypal USD
  • Guy’s prediction for stablecoin interest-bearing market cap

Further reading: