Ethena, a decentralized finance (DeFi) protocol, recently made a significant investment decision regarding its $46 million backup fund. The protocol, known for issuing the $2.5 billion yield-generating USDe “synthetic dollar” token, announced that it will be investing in various tokenized funds. These funds include BlackRock’s and Securitize’s BUIDL, Mountain’s USDM token, Superstate’s USTB, and Sky’s new USDS stablecoin.
The Reserve Fund of Ethena will allocate approximately $18 million in BUIDL, $13 million in USDS, $8 million in USDM, and $7 million in USTB. This strategic move aims to allow Ethena to earn a yield on surplus funds accrued from protocol revenues, serving as insurance during periods of negative funding rates. The USDe token generates yield by holding spot bitcoin (BTC) and ether (ETH) while shorting equal amounts of BTC and ETH derivatives, thereby capitalizing on the difference in funding rates.
This investment decision by Ethena aligns with a larger trend in the DeFi space, where platforms and protocol foundations are increasingly moving their treasury assets to tokens backed by real-world assets (RWA). By investing in assets such as U.S. short-term government bonds, these entities can earn yields independent of the volatile crypto markets while remaining on the blockchain. This shift has led to significant growth in the tokenized Treasury market, which has tripled in size over the past year to reach $2.2 billion, as per rwa.xyz data.
The selection process for these RWA-backed products involved 25 issuers applying for allocation, with the final decision made by the Ethena Risk Committee. This committee comprises five voting members from DeFi risk and advisory firms, including Gauntlet, Block Analitica, Steakhouse, Llama Risk, and Blockworks Advisory, with the Ethena Foundation as a non-voting member. Moving forward, any future funds accrued in the Reserve Fund will not automatically be invested in these products, as each investment decision will be made separately.
Overall, Ethena’s strategic investment in tokenized RWA assets reflects a broader shift within the DeFi space towards diversification and risk management. By leveraging real-world assets to generate yields, DeFi protocols like Ethena are exploring new avenues for growth and stability in an ever-evolving market landscape. This move underscores the importance of adapting to changing market conditions and exploring innovative investment opportunities within the decentralized finance ecosystem.