Ethena (ENA), the issuer of the $2.5 billion yield-generating USDe ‘synthetic dollar’ token, has announced its decision to invest its $46 million backup fund in several tokenized funds. This move is part of a growing trend in DeFi platforms and protocol foundations seeking to earn a yield on surplus funds while minimizing risk.
Ethena’s Reserve Fund Allocation
The protocol’s so-called Reserve Fund will allocate roughly:
- $18 million: in BUIDL, the tokenized fund from BlackRock and Securitize
- $13 million: in USDS, the new stablecoin of Sky, formerly known as Maker
- $8 million: in USDM, the token from Mountain
- $7 million: in USTB, the token from Superstate
This allocation was made after a thorough evaluation process involving 25 submissions. The Ethena Risk Committee, comprising five voting members from DeFi risk and advisory firms, selected these four assets based on a wide range of criteria.
Why Tokenized Funds?
The decision to invest in tokenized funds is part of Ethena’s strategy to generate yield while minimizing risk. USDe generates yield by holding spot bitcoin (BTC) and ether (ETH) while shorting, or selling, equal amounts of BTC and ETH derivatives, harvesting the difference in funding rates. The allocation will allow Ethena to earn a yield on surplus funds accrued from protocol revenues that serve as an insurance for periods when funding rates turn negative.
Growing Trend in DeFi
This move fits into a growing trend of DeFi platforms and protocol foundations moving part of their treasury assets to tokens backed by real-world assets (RWA) such as U.S. short-term government bonds. This trend has helped the tokenized Treasury market triple in size in a year to $2.2 billion, according to data from rwa.xyz.
Background on Ethena’s Decision
The decision comes after Ethenalaid out plansin July to invest its Reserve Fund in RWA-backed products. Some 25 issuers applied for allocation, and the final selection was made by the Ethena Risk Committee. Future funds accrued in the Reserve Fund will not be invested automatically in those products, that will be a separate decision.
Benefits of Tokenized Funds
Tokenized funds offer several benefits to DeFi platforms and protocol foundations:
- Diversification: By investing in tokenized funds, Ethena can diversify its assets and reduce risk.
- Yield Generation: Tokenized funds can provide a yield on surplus funds, helping to generate revenue for the protocol.
- Real-World Asset Backing: Tokenized funds are backed by real-world assets, such as U.S. short-term government bonds, providing an additional layer of security.
Conclusion
Ethena’s decision to invest its $46 million backup fund in tokenized funds is a significant move for the DeFi protocol. By allocating funds to BUIDL, USDS, USDM, and USTB, Ethena can generate yield while minimizing risk. This trend is expected to continue as more DeFi platforms and protocol foundations seek to earn a yield on surplus funds.
