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Ethereal: What's behind the buzz?
Niklas Polk
main
Key Takeaways
4 min read
  • Ethereal is a next gen DEX being built as Layer 3 on top of Ethenas upcoming network and will use USDe as base asset.
  • It is not live yet, but you can already farm points by depositing USDe into a pre-deposit contract.
  • As the pre-deposit contract ist quite straightforward, it is considered low-risk and gives you Ethereal points on top of all the other USDe related points, personally I migrated my USDe (Pendle) farms to eUSDe (Ethereal).
  • Markets (i.e. Pendle) seem to estimate APR at around 14%, 3% higher as the pure USDe yield. These 3% premium seem like an underestimation.

Introduction

Ethereal is a next-generation decentralized exchange (DEX) for spot and perpetual trading, launched on the Ethena Network. It aims to offer a trading experience similar to centralized exchanges (CEXs) like ByBit, but with the security and self-custody benefits of decentralized finance (DeFi). Recent developments include the Season Zero program, where users can deposit USDe to earn points, and a partnership with Pyth for fast, accurate price feeds, enhancing trading reliability.

What Ethereal Is and Why It Could Stand Out

Ethereal is designed to bridge the gap between CEX performance and DeFi security, focusing on high-speed trading and integration with USDe, a synthetic dollar from Ethena that generates rewards. Here’s how it differs from competitors like dYdX, GMX, and Hyperliquid:

  • Performance: With sub-20ms latency and the capacity to process over 1 million orders and 1,000 trades per second, Ethereal offers institutional-grade infrastructure, including advanced order types and TradingView charts.
  • USDe Integration: Unlike competitors, it uses USDe for margining, providing users with additional rewards, enhancing capital efficiency.
  • Ecosystem Support: Operating as an L3 that settles on the upcoming Ethena network, it has access to over 200,000 users and $5 billion in liquidity, offering deep orderbook liquidity while still keeping control over blockspace and other chain-specific parameters.
  • Partnerships: The collaboration with Pyth ensures fast (1ms) price updates, improving funding calculations and risk management.

Points Program

Ethereal’s Season Zero Program allows users to earn points by depositing USDe in their pre-deposit vault via the app. So far the vault already attracted over $400m in deposits.

Nansen
Source: Nansen

Key details include:

  • Points accrue linearly based on deposit size and duration, with no minimum stake and the ability to unstake anytime.
  • A 30x Ethena Rewards Multiplier boosts returns, and a referral program offers extra points for inviting others (advised to refer to yourself).
  • Using a Pendle YT gives you 1.6x Boost, however exploiting this (too obviously) by taking both “sides” of the trade and earning a disproportionate amount of points has been scrutinized and might result in slashing.
  • Token is expected to launch in May 2025.

Right now, the PT APR of the eUSDe Pendle vault is around 14.5%, ~3% higher than the “pure” USDe vault with later maturity, although it earns all of the USDE points as well - putting the pure Ethereal points APR at only ~3%.

This seems like a decent potential entry point - if you actually believe USDe points are really worth 11.15% and consider buying the YT, opting for the eUSDe YT could turn as a good decision.

Pendle
Source: Pendle
Pendle
Source: Pendle

Another riskier way to earn Ethereal points is through staking ENA (7d unstaking period), whereas locking it on top of staking (additional 14d unlock period) will increase rewards further. However it has to be noted, that ENA is a highly volatile asset which has seen quite some price depreciation lately and only 15% of Ethereal tokens are expected to be allocated to ENA.

Ethena
Source: Ethena

Potential

Ethereal has significant growth potential, driven by its connection to Ethena:

  • Shared incentives: Depositors gain incentives from Ethena on top of native Ethereal incentives, enabling potentially higher rewards and yield than what would be possible from “stand-alone” competitors.
  • Attracting Ethena's TVL: With Ethena's backing, it could become home to a share of the ~$6b USDE in circulation, immediately boosting liquidity, especially for vaults. It already managed to attract over $430m without a working mainnet product.
  • Potential home to Ethena's Perp positions: Apart from Ethena users, Ethena itself is likely to put at least a part of their Perp positions on Ethereal eventually, as a sign of support, boosting fees, volume and utilization.
Ethena
Source: Ethena

Risks

While farming Ethereal does not inherently give you exposure to volatility, it is not without risk. On the one hand it inherits all the risks of Ethena and USDe, on the other hand it also has its own additional protocol risk. However, the product is not live yet and the simple pre-deposit contract is comparatively safe and you can withdraw anytime.

That being said, it is still recommended to track any suspicious activity (especially large withdrawals) using e.g. Nansen.

Nansen
Source: Nansen
Conclusion

All things considered, in the current market conditions it is especially challenging to correctly value any token or project, so calculating the potential reward is like trying to shoot a rapidly moving target. However, compared to “raw” USDe, eUSDe seems like the more attractive deal at the time of writing. Personally, I migrated my USDe to eUSDe as well as the Pendle PTs.

Ethereal has potential to become a major player in the (Perp) DEX space, and offer very competitive yields and great UX. If you are already farming USDe points, depositing in a relatively straightforward deposit-contract for additional points is a move to consider. Vice versa, if you are already farming the USDe PT on Pendle, switching to the eUSDe PT for additional yield (or taking the respective other side of the trade with the YT), is also definitely worth considering.

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Disclosure: The authors of this content and members of Nansen may be participating or invested in some of the protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Nansen does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Nansen at any time without notice. Nansen accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.