On The Brink with Castle Island Guy Young (Ethena) on a New Model for a Crypto-Backed Stablecoin (EP.459)
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Oct 9, 2023 Guy Young, founder and CEO of Ethena, talks about the design of synthetic stablecoins and their use of staked ETH as collateral. They discuss the challenges faced by previous stablecoins, the correlation dynamics between ETH yield and funding rates, and the possibility of adding Bitcoin as collateral. They also explore the shrinking supply of stablecoins, the impact of traditional finance yield, and the differences between PayPal's stablecoin and their traditional product.
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Ethena's Bitmax Inspiration
- Ethena builds on a concept from Bitmax traders who synthetically created a dollar by offsetting BTC positions.
- They tokenize this basis trade to create a synthetic USD stablecoin that is scalable beyond exchanges.
Staked ETH Yields Boost Safety
- Using staked ETH instead of Bitcoin unlocks positive carry of 4-6%, improving synthetic stablecoin safety.
- This yield can be tokenized and used as a crypto-native reserve asset similar to a US Treasury analog in DeFi.
Off-Exchange Custody Innovation
- Ethena separates custody of assets from exchange execution to reduce counterparty risk.
- Off-exchange custody is a key innovation enabling scalable and safer synthetic stablecoin infrastructure.