The round included participation from major crypto derivatives exchanges - including Deribit, Bybit, OKX, Gemini and Huobi - as well as a number of other venture capital and trading firms.

Founded earlier this year, Ethena aims to address the need for accessible, permissionless dollar-denominated savings instruments beyond the US. The firm is working to develop two new products for investors operating outside of the US:

• A US dollar stablecoin with a novel mechanism for maintaining its peg that will enable it to operate entirely independently of the traditional financial system; and

• The first-ever digitally native savings bond.

The stablecoin will be fully collateralized and transparent, with all custody and settlement occurring on chain. It will maintain its US dollar peg by using the collateral provided by its users to hedge the price exposure by shorting (or betting against) Ethereum using perpetual swaps to achieve “delta-neutral” stability. Holding equal amounts of staked Ethereum and perpetual swaps shorting Ethereum will ensure that any losses or gains by either asset are effectively canceled out, such that the stablecoin maintains a constant peg of $1.

The savings bond will be a separate bond token built on top of the stablecoin that functions similarly to a US treasury, but without any ties to centralized banking institutions or government entities. Together, the stablecoin and bond asset will form a highly scalable digital currency and savings platform that offers a true alternative to traditional banking systems for users worldwide.

“Ethena has been built to address the largest and most obvious immediate need within crypto: DeFi aims to create a parallel financial system, yet the sector’s most important financial instrument - stablecoins - are completely tethered to, and reliant upon, traditional banking infrastructure,” said Guy Young, Founder and CEO of Ethena. “We also fundamentally believe individuals beyond the US should have permissionless access to the most basic financial instrument on earth - a dollar-denominated savings instrument to store their wealth. Through our novel stablecoin, we are realizing our vision for a crypto-native stablecoin that is not reliant on banking infrastructure and enabling the creation of a widely accessible and permissionless internet bond.”

Ethena’s stablecoin is designed to mitigate the risk inherent in existing fiat-based stablecoins, which carry significant custodial and regulatory risk that is shifted entirely onto their users while the issuers reap all of the rewards. Onchain stablecoins also often involve significant overcollateralization, creating issues with capital efficiency and scaling as their growth is inexorably linked to the demand for leverage within DeFi. Ethena’s stablecoin aims to address these issues by providing a new market structure that is not reliant on external banking infrastructure, while also offering a much more attractive risk/reward profile for users. By breaking ties to centralized banking systems, Ethena will provide a much-needed savings instrument for investors of all means across the globe, rather than a niche DeFi community.

“Ethena is building the holy grail of stablecoins: a coin that is truly stable, decentralized, and capital-efficient,” said Tom Schmidt, General Partner at Dragonfly. “Stablecoins have grown massively in popularity over the past few years by providing access to USD-denominated savings and remittances for people around the world, but they’ve always been handicapped by one of these three issues. Ethena has a breakthrough design that remedies these issues while also benefiting a broad user-base. We’re thrilled to be partnering with them to bring their vision to life."

Ethena will utilize the seed investment to prepare for the launch of their stablecoin and bond asset in the third quarter of 2023, including successfully completing the testnet phase in Q3 of this year, launching partnerships with other industry leaders, and conducting smart contract audits to ensure the security and efficiency of the protocol.

“I am so excited that such a talented team took an essay I wrote as inspiration to help solve one of the most significant problems facing the crypto markets,” said Mr. Hayes, who is also credited with inventing the perpetual swap. “It is great to see the entire crypto capital markets ecosystem lining up behind Ethena to support its mission to bring a community- owned stablecoin to fruition.”