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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Funding Rate Driven by Long Bias
- Positive funding rates in ETH derivatives arise because of a systemic long bias with high demand for leverage.
- Crypto option markets reflect this by pricing calls higher than puts, opposite to equities.
ETH Yield Explained
- ETH yield comes from inflationary rewards and network fees paid by users securing the protocol.
- This yield is conceptually like a dividend from equity exposure to Ethereum's network.
Negative Correlation of Crypto Yields
- ETH yield and funding rates show a weak negative correlation, providing diversification benefits.
- Crypto yields rise when traditional interest rates fall, making crypto yields a hedge against tradfi rates.