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The Stablecoin Even Top VCs Trust: Ethena Deep Dive

Dragonfly is backing it – should you? We break it down

Author

Kierin M
February 24, 2024

Most investors miss early signals on high-potential projects.

That’s why in this newsletter, I'll break down Dragonfly’s holdings and deep-dive into their recent investments, including an extremely promising stablecoin project offering 24% returns on your stables.

Current Dragonfly Portfolio holdings

With over $1 billion, Dragonfly Capital has a 60% win rate. Their early bets in the crypto space paid off handsomely. Here are their top three biggest winners: Polygon Matic (377x), Avalanche AVAX (81x), Maple Finance MPL (63x).

Knowing what they hold is a good starting point for finding projects with a higher chance of being profitable investments.

You can have a look at all of their portfolio holdings by going to this googlesheets document.

From these holdings, here are a few coins that I believe have a big chance of making multiple x’s in the next rally.

I think new VC-funded L1s, AI projects, and RWA projects will perform extremely well. Also, coins that have memorable names that have to do with an important trend or narrative, i.e., ALT (sounds a bit like altcoins) and the ticker for sleepless $AI, this fits the AI narrative.

Here are some other projects from their portfolio that, I think, are super interesting picks that will perform pretty well during alt season:

5 interesting coins

  1. AltLayer (ALT) $0.48: AltLayer is a flexible layer-1 blockchain infrastructure designed to facilitate the creation of rollups. AltLayer addresses the key challenge of blockchain scalability, potentially unlocking widespread adoption. I like the fact that it’s got the $ALT ticket. That’s pretty awesome and quite memorable.

  2.  Celestia (TIA) $16.78: Celestia is a modular blockchain network specializing in data availability and consensus. It makes the creation of new blockchains straightforward by decoupling these elements from execution.

  3. Sui (SUI) $1.61: Traditional blockchains struggle to handle high demand, leading to slow transactions and expensive fees. Sui's unique parallel processing architecture offers unprecedented scalability, enabling complex applications and a seamless user experience even during peak usage. A lot of users want faster tx and the able to buy $5 worth of memecoins. Something that is not possible on Eth.

  4. Maverick Protocol (MAV) $69: Maverick Protocol introduces an automated market maker (AMM) specifically designed to reduce volatility and minimize the impact of impermanent loss. Their algorithm rebalances liquidity continuously to counteract price movements, aiming to keep trading pairs closer to the market price.

  5.  Oasis Network (ROSE) $0.12 Many large companies don’t care about data privacy. Oasis Network is a blockchain built to return ownership and control of your information to you. It allows for private transactions and the development of apps where sensitive data is protected, not exploited.

Recent Dragonfly Seed Rounds Breakdown

I’ve gone through the last 20 raises and have only selected projects that make the most sense to invest in from a retail perspective. updates

Investments without tokens

Ethena (2 raises $6.5m & 14m): Ethena USDe is a stable, yield-bearing digital dollar built on Ethereum

Medallion ($13.7m): Web3 technology that helps artists launch digital worlds to expand fan participation, actionable insights, and economic potential

Kaito ($5.3m): Easily search and track any tickers, topics, and narratives across thousands of premium Web3 sources, turning terabytes of unstructured information into actionable insights and powering more informed decision-making.

Kaito allows users to search millions of data across the web and Twitter and uses AI to help you find alpha a lot faster.

Here’s an example from Kaito using the social signal feature that showed a growing interest in Pendle Finance ($PENDLE).

I haven’t tried it yet (quite expensive), but I might in the future.

Project Spotlight: What is Ethena USDe?

short answer: Ethena USDe is a stable, yield-bearing digital dollar built on Ethereum, designed to offer global access and censorship resistance while combining the benefits of crypto and traditional finance. You also get 24%

How USDe Works

  • Combination Strategy: Ethena's Internet Bond pairs staked Ethereum (stETH), which earns staking yields, with a short position in ETH futures. This creates a delta-neutral position, meaning the price fluctuations of the underlying ETH cancel out, resulting in a stable, dollar-pegged asset.

  • Yield Generation: The yields from your staked Ethereum contribute directly to the APY available on USDe.

Why It's Not Like UST

  • Centralized, Not Algorithmic: Unlike UST, which relied on complex algorithms to maintain its peg, USDe is centralized. This means there's more control for adjustments and less risk of a death spiral collapse.

  • Safety Measures: Ethena has several mechanisms in place to protect against volatility and de-pegging:

    • Centralized management and risk controls

    • Third-party custody service (Copper) for security

    • Insurance fund to maintain collateralization

Staking, Shorting, and Volatility Insurance

The act of staking and shorting Ethereum with USDe is how price stability is achieved and where the yield comes from. Additionally, the insurance fund and centralized control are further buffers against volatility common in the crypto market.

The biggest risk I see is that stETH depegs from ETH, and the losses from that depeg won’t be covered by shorting ETH. I will need to dive into that aspect a lot more. If a reader has some insight, feel free to share with me.

I still have some PTSD from the Luna crash. 

I remember quite clearly when I read the proposal that Terra wanted to change the APY (which was at 20%) to a variable APY that will go down by 1% every week. I was quite scared about a bank run. A few days after I read that, I started moving UST out of Anchor and back to ETH.

I also remember pressuring my wife to move her money out. At first, she didn’t want to, as she didn’t think the risk to be real. We were sitting in a coffee shop in Mexico, and I finally got her to remove the funds.

A few days later, UST collapsed, and Luna went to a few cents.

I’ll definitely not blindly trust any stablecoin, but I think it’s great that there are more options since diversifying my stablecoin holdings during the bear is the best way to mitigate risk. As well as getting stablecoin insurance.

🧰 Actionable: 

  1. Referral Code: Start by visiting Ethena’s landing page and entering a referral code if you have one. (http://app.ethena.fi/join/itamf)

  2. Acquire USDe: Through the Ethena app, purchase USDe, the stablecoin the protocol offers.

  3. Provide Liquidity: Use your USDe to provide liquidity in eligible Curve finance pools.

  4. Lock LP Tokens: After providing liquidity, you'll receive LP (liquidity provider) tokens, which you should then lock back in the Ethena app to participate in the Shards Program.

  5. Earn Shards: By locking your LP tokens, you start earning shards, which are part of the airdrop campaign.

I won’t be farming the shards at the moment since I don’t want to hold stables. If you want, you can use my ref link, but since I’m not earning any shards, I won’t really get any kickback. However, I found it difficult to find a ref link to use to use the platform. That’s why I’m sharing it.

Interviews you can’t miss: Dragonfly

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