Beneath the guise of stablecoins, is $ENA an innovation in model or an eyewash in valuation?

Is Ethena just an overvalued hedge fund? What it aims to create is a massive CeDeFi ecosystem. (Background: Stablecoin issuer StablecoinX “establishes Ethena reserve,” raises 360 million USD with a daily investment of 5 million USD, ENA jumps 13%) (Additional background: Comprehensive interpretation of Ethena: A new generation of crypto world USD Federal Reserve) “Stablecoin” is just the outer garment of Ethena. Now let’s take off the outer garment: You transfer funds to a trading company, which has a hedge fund that is risk-neutral (won’t lose due to asset price fluctuations) and offers an annualized return of up to 10% with a large fund capacity. The net asset value when this fund product is issued is 1 USD, and the returns accumulate as the net value updates. You can buy in at any time, but selling through official channels requires a 7-day wait. This trading company is called Ethena. For every 1 USD you deposit, you receive 1 USDe as a deposit certificate. The fund product is called sUSDe, and currently over 4.6 billion pieces have been issued, with each piece of sUSDe having a net value of 1.19 USD. All customers’ USDe and sUSDe are sent to an on-chain wallet, registered on the blockchain, and the trading company transforms into an “on-chain protocol.” USDe then becomes a synthetic dollar stablecoin. On the Ethereum Mainnet, the sUSDe token is hotly discussed in the current narrative of “stablecoins”; more and more companies use stablecoins as a shell while executing high-risk trading strategies behind the scenes, often referred to as “Stablecoins backed by derivatives.” However, compared to stablecoins based on short-term government bonds, the risks associated with these stablecoins are not comparable, and one must even question whether they are truly “stable.” For example, Ethena’s trading strategy (which will be elaborated later) requires deploying funds in perpetual futures exchanges - previously, the centralized exchange Bybit suffered more than 1 billion USD in ETH funds being stolen, while Ethena has a significant amount of funds on Bybit. If the exchange experiences a funding gap and stops withdrawals, the collateral behind USDe could also become insolvent. Meanwhile, U.S. government bonds are viewed as the safest investment, with the market almost presuming “zero risk.” So why does Ethena take such risks, packaging trading strategies into stablecoins on the blockchain, and what are the benefits of this operation? The first is “crypto world premium” because if we only view Ethena from the perspective of a trading company, its valuation is “overvalued.” Overvalued? Ethena fits the model of a “hedge fund” in all aspects, including its revenue model. Revenue Model Ethena’s main source of income is “funding fee arbitrage.” For instance, Ethena uses some of the stablecoins deposited by users to buy ETH and stake it, while opening an equal short position on the exchange. The gains and losses from spot and futures offset each other, achieving Delta-Neutral (risk-neutral, profit is unrelated to asset price fluctuations). Thus, the spot ETH position can earn an annualized staking yield of about 3%, while in neutral or bullish sentiment, the short futures position will continuously earn funding fees paid by the long side. Idle stablecoins can also be deployed in protocols like Sky to earn returns. Multiple layers of income can lead to an annualized return of 18% in 2024. As of July 18, Ethena’s projected yield for 2025 is 7.1%. Ethena takes 20% of strategy profits as protocol fees, with the remaining 80% as profits for sUSDe, equivalent to a 20% performance fee, which is very common in private hedge funds. So, based on this model, how much is Ethena worth? Traditional Valuation Model The valuation model for private hedge fund companies (unlisted, such as Citadel, Two Sigma) usually uses a net income multiple of 5-15 times as a benchmark, with the multiple varying based on the stability of funds and the replicability of strategies. During the actual valuation process, investors mainly focus on several core factors: First, capacity, whether the fund has room to expand its Assets Under Management (AUM); second, stability, whether it can consistently produce stable annualized returns; and third, investor stickiness, including the lock-up period of funds and long-term retention rates. Ethena’s annualized returns are currently unstable due to market conditions. Specifically, management fee-related earnings (Fee-related Earnings, FRE) are usually more stable and predictable, allowing for a higher valuation multiple of 10-15 times; while performance fees, due to their volatility, generally receive a lower multiple of 2-5 times. The final valuation is typically calculated using a mixed model, such as “FRE × 10 + Performance Fees × 3.” Currently, Ethena’s revenue model only includes performance fees, without management fee income. Moreover, if the fund is in a rapid expansion phase, such as doubling its AUM each year, the valuation will also add a growth premium, further elevating the overall valuation level. Ethena’s recent TVL has surged significantly, becoming a plus point for its valuation. However, considering that its underlying strategy has a capacity limit (restricted by the market capitalization of crypto assets and the corresponding capacity of perpetual futures), one should not be overly optimistic about the growth of its hedging strategy. Ethena’s current total locked value (TVL) is 13 billion, equivalent to an AUM of 13 billion USD. When funds are managed within the industry during acquisitions or investments, valuations are often calculated at 2%-6% of AUM. Even if calculated at 10%, the valuation would only be 1.3 billion USD, but Ethena is a trading company, not an asset management company, so this metric does not apply. Ethena’s annualized income is about 400 million USD; data from DeFiLlama estimates Ethena’s annualized earnings based on the last 30 days at 400 million USD. Calculating at a higher multiple of 15 times, the valuation should be 6 billion USD. The data used here is not conservative, as Ethena may not be able to maintain its current annualized earnings and growth curve. Ethena’s ENA token currently has a fully diluted market capitalization of 9.7 billion USD, which represents a 60% premium compared to the previous valuation. What makes its valuation “overvalued” is that its token currently does not provide any substantial “empowerment.” The value capture of the token Ethena has not yet activated the “Fee Switch,” meaning that currently all revenues of the Ethena protocol are unrelated to ENA holders. So what is ENA useful for now? Staking ENA tokens can earn sENA tokens (unstaking requires a 7-day wait); aside from the negligible annual interest from staking itself, sENA tokens can also earn Ethena’s own point rewards and numerous ecological project point rewards. These projects have promised certain amounts of their own tokens to sENA token stakers, including Ethereal (15%)…