Shards out Sats in: Farming Ethena’s Season 2 Sats Campaign
April 2, 2024 marked the official end of Ethena’s Shard Campaign and the start of a new season with a new campaign called “The Sats Campaign”. With the Bitcoin halving coming this April, Ethena made a fitting execution that will introduce Bitcoin as a backing asset of the project.
A refresher on Ethena
Ethena is a synthetic dollar protocol built on Ethereum that provides a crypto-native solution for money not reliant on traditional banking system infrastructure, alongside a globally accessible dollar-denominated savings instrument — the ‘Internet Bond’. In simple terms, Ethena serves as a stablecoin savings account for users with yields coming from staked Eth and funding rates from Centralized and Decentralized Exchanges.
Where does the yield come from?
- Ethena’s mechanics lies behind a delta neutral hedge on $ETH by generating yield from LST/LSD like stETH while shorting ETH on both CEX and DEX. This delta-neutral strategy generates yield while unexposed to the underlying asset’s price (long spot ETH + short ETH on perp = no exposure to ETH USD value)
- As a user, you provide a ETH and/or stables that serves as collateral in Ethena’s custody, which they use to put on this yield generating delta neutral position
Season 1 Shards Campaign Recap
Ethena’s Shard campaign started last February 19 with its duration being 3 months or reaching a $1B USDe market cap. After only 6 weeks, Ethena reached the $1B mark and achieving the following feats.
- 1.5x larger than the entire tokenized treasury RWA market
- 3x larger than the entire onchain ETH open interest for every DEX combined
- Higher than all stablecoins on Base, Blast, zkSync, Aptos and Starknet combined.
$ENA TGE
In 6 weeks of the campaign, 122.1k users have amassed a total of 360.7B shards. The Season 1 airdrop distributed 750M $ENA in a linear fashion according to each user’s accumulated shards.
$ENA opened trading at $0.544 with a market capitalization of $1.12B and an FDV of $8.16B.
$ENA Tokenomics & Vesting
ENA will be used to vote on governance proposal on matters regarding the Ethena protocol, some of which will be key measures to the operations of the protocol, such as:
- General risk management frameworks
- USDe backing composition
- Exchange exposure
- Custodian exposure
- DEX integrations
- Cross chain integrations
- New product prioritization
- Community grants
- Sizing and composition of Reserve Fund
- Distribution allocation between sUSDe and Reserve Fund
Season 2: The Sats Campaign
In simple terms, Ethena’s Sats Campaign is a rebranding of its previous Shards Campaign. Sats represents the onboarding of BTC as a backing asset. The perpetual futures of BTC offer Ethena an additional $25B of open interest to delta-hedge which is a 2.5x increase on the current size of ETH perpetual futures. Average funding on BTC has consistently matched ETH funding rates and presents one of the largest untapped real yield opportunities in all of crypto.
New Partnerships
MakerDAO and Morpho
Money market protocols MakerDao and Morpho launched USDe and sUSDe/DAI pools with Maker allocating 100m of DAI liquidity via Spark. Season 2 LP pool caps will be increased to cater growing demand.
Mantle
Ethena has officially integrated with the Mantle ecosystem for Season 2. Prior to the launch Mantle indicated their integration with Ethena through the Mantle Rewards Station Campaign where users can lock their $MNT tokens to farm Ethena Shards.
Apps on Mantle to farm Sats
LP on Merchant Moe (Decentralized Exchange)
Provide collateral or Looping Hook on Init Capital (Money Market)
Use USDe as collateral on Intent X (Derivatives Exchange)
Farming Opportunities
Season 1
Doing the math for Season 1 shards farming, a $1000 position in Pendle Finance yielded the highest ROI with a 112% return in LP and 238% return through YT.
Disclaimer
- Yields from underlying strategies were not considered to focus on the shards farming
- Assumption of farming Shards since Day 1
- No compounding computations were made
- Referral bonuses were not considered
Season 2
Season 2 opens with more options on earning Sats compared with the Shards Campaign. Let’s try to have a simulation on the different Sats earning opportunities using a $1000 position again.
Assumptions would also be made to simulate earning opportunities in Season 2.
Using these assumptions we would be provided with the following earning potential per Sats earning options.
Out of the 7 Sats earning options, holding YT USDe yields the highest rewards giving our $1000 position an ROI of 159%. On the other hand the safest route of the 7 options which is providing collateral on Maker yields 11.10% for our position.
Disclaimers
- Computations may not be accurate due to various moving factors and wrong assumptions
- Mechanics are subjected to change thus will impact computation
Assessment
Looking back at Season 1, the simplest farming strategy of buying and holding $USDe provided an ROI of 23.75% while the simplest strategy in Season 2 of providing $USDe as collateral in Maker would yield an ROI of 11.10%. The best farming strategy for both season 1 and season 2 is still the YT USDe on Pendle with season 1 yielding 237.54% and season 2 yielding 159% ROI.
Comparing the two seasons, being early was greatly incentivized as the Shards campaign was clearly more profitable in farming compared with the simulation for Sats Campaign.
Risks
Depeg Risks
- Funding Risks: Negative funding rates (Shorts pay longs) will bring the yield of USDe down with ETH yield carrying the load.
- Liquidation Risks: staked ETH depeg which is used to collateralized short ETH positions.
Exchange Failure Risk
- Derivatives positions are opened on CEXes and DEXes. Protocol would need to manage consequences if ever one or more exchanges shuts down.
Collateral Risk
- With LSTs being the main collateral for Ethena, a failure of this LST will also hit Ethena.
Summary
Ethena’s Season 2 Sats Campaign though being less lucrative than the Shards Campaign, still provides great earning opportunities to farmers. The passive earnings from trading fees in Dex LPs and the borrowing fees in money market protocols with an added incentives from Sats that can be converted to $ENA tokens by the end of the campaign would still outperform most DeFi returns.
