Analysis of Ethena’s mining yield in the second quarter, up to 400%+APY?

Original author: Thor, Donovan Choy, crypto investment analyst

Original translation: Azuma, Odaily Planet Daily

Editor's note: Earlier this month, USDe developer Ethena Labs announced the launch of the second season of Sats, which will cooperate with Ethena to use BTC as a supporting asset. It is expected to last until September 2 (5 months) or until the supply of USDe grows to $5 billion, whichever comes first.

As the most concerned stablecoin project in the market, Ethena Labs' popularity has reached its peak with ENA's TGE. At present, ENA's full circulation valuation (FDV) exceeds $13 billion. For users who are interested in participating in the project, in addition to directly purchasing ENA in the secondary market, the most efficient means is to earn subsequent ENA rewards through the second season of Sats.

This article is a detailed analysis of the operation and potential yield of the three mining strategies of low, medium and high in the Stas activity by former Bankless analysts Donovan Choy and Thor, compiled by Odaily Planet Daily.

Ethena's first season event Shards lasted for six weeks, and top miners such as Defi Maestro reaped eight-digit profits through the first season event.

If you missed the first season event, it's still time to participate in the second season event Sats. Although the (Pendle) pool quota is gradually approaching full, you still have the opportunity to participate.

In the following, we will analyze three different Ethena mining strategies and their potential returns.

Before we officially start the data analysis, let's take a brief look at the basic concepts involved in the above strategies.

· First, Ethena is the issuance protocol of USDe, a synthetic USD stablecoin with its own yield. When you buy USDe during the second season, your address will automatically accumulate points (sats), which will determine the ENA rewards you get in the second season - ENA is Ethena's governance token, and its FDV is as high as $14.3 billion when I write this article.

· Secondly, Pendle is a yield-splitting protocol that can split a token with its own yield (such as USDe) into "principal tokens" (PT) and "yield tokens" (YT). PT allows users to maintain independent principal exposure, while YT allows users to maintain independent yield exposure. Since YT does not contain principal, the value of YT will gradually tend to zero on the expiration date. For the strategies to be mentioned in this article, our focus will also be on YT.

In the case of this article, since USDe's current annualized yield is 17%. So when you buy USDe YT tokens on Pendle, the YT tokens only carry the 17% yield value and the points reward provided by the underlying protocol (Ethena).

· Third, Mantle and Arbitrum are both Layer 2 networks, and Pendle has been deployed on these networks in addition to Ethereum.

After understanding these basic concepts, let's take a look at the three mainstream mining strategies in the second season event:

· Low risk: hold USDe on Ethereum (get 5 times sats per day), or lock it for at least 7 days (get 20 times sats per day);

· Medium risk: buy USDe YT on Pendle;

· High risk: lock ENA to get a yield bonus, and buy USDe YT on Pendle with an equal amount of funds.

Estimated total amount of sats for the second season

To calculate the specific potential rate of return, we need to first answer a key question - how many sats will be distributed by the end of the second season? Based on this crucial answer, we can quantify the airdrop income and determine which strategies can achieve the best return at the corresponding risk level.

Note: We do not count the points issued to USDe and ENA in CEX wallets

We conservatively estimate the overall growth rate of sats to be 40%, which means that by the end of the second season (September 2, 2024), a total of 10.1 trillion Sats will be distributed. It is worth mentioning that if the USDe supply reaches $5 billion ahead of schedule, the second season will also end, but we believe that this is unlikely to happen ahead of schedule based on the current supply of $2.4 billion and the growth rate.

Note: Data is taken from DeFiLlama

Low-risk strategy: hold and lock USDe

Now let's calculate the potential return of just holding and locking USDe, which is also the lowest risk strategy in this article. Here are our two assumptions: 5% of the total supply of ENA will be distributed in the second quarter (assuming the same as the first quarter); the FDV of ENA at the time of the second quarter airdrop is $20 billion, and the data at the time of writing this article is $14.4 billion;

As shown in the table below, if you lock 20,000 USDe at 20x efficiency today (130 days left in the second quarter), you will make a profit of $5,186. This means a return on investment (ROI) of 25.93%, which converts to an annualized rate of return (APY) of 72.45%.

Unlike the subsequent strategies, this strategy does not involve Pendle, and you can keep your entire principal.

Medium-risk strategy: Pendle YT

Now let's look at a medium-risk strategy, using Pendle's USDe YT to earn sats on the Ethereum mainnet.

With the same $20,000 in funds (but the difference is that the term will be 92 days because the Pendle pool will expire), the expected ENA income to be obtained is about $43,710, and the net income after deducting the principal will reach about $23,710 (the value of YT will be zero at expiration, so you will lose the $20,000 principal), which is about 4 times that of the first strategy.

Under this strategy, the ROI is expected to reach 118.55%, and the APY is expected to reach 331.22%.

Note that the calculations in the table below are based on the current leverage of the Pendle market, and YT's real-time leverage will be affected by market demand and expiration dates.

If you do not choose the Ethereum mainnet, but operate in the Pendle pool on Arbitrum, the expected ROI and APY are slightly lower, to 114.96% and 321.18% respectively. The reason for this difference is actually because there is a difference in the real-time leverage of YT on the Ethereum mainnet and Arbitrum.

You can also perform similar operations in the Pendle pool on Mantle or Zircuit, but the expected data will also change to some extent.

High-risk strategy: lock ENA and buy YT

Finally, let's look at the highest-risk and highest-potential strategy, which splits the principal 50:50, half for locking ENA and the other half for buying Pendle's USDe YT.

Why is it so complicated? This is because Ethena will provide additional yield incentives to users who "lock ENA that accounts for 50% of the total value of their USDe holdings", and by holding YT-ENA and YT-USDe in the same wallet, this will increase your total rewards in both pools by 50%.

This may also be the strategy adopted by the most savvy YT traders, who may make full use of the airdrop rewards they received in the first season to obtain higher sats accumulation efficiency in the second season.

As shown in the table below, this strategy (deployed on Arbitrum) offers the highest returns - 162.56% expected ROI and 454.17% expected APY, but in return comes with a higher risk due to locking up ENA.

Note: USDe pool is on Arbitrum, ENA pool is on Ethereum mainnet

Finally, if you choose a strategy that leverages Pendle YT, you need to pay attention to the real-time leverage. When the market is selling YT (which is more likely to happen closer to expiration), leverage will increase, and vice versa. Although the real-time leverage will continue to change based on the YT market, once you buy YT, the leverage for your position will not change and will last for the entire holding period.

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