Article Rewrite:
Author: Donovan Choy, former analyst at Bankless
Translation by: Odaily Planet Daily Azuma
Editor’s Note: Earlier this month, USDe developer Ethena Labs announced the launch of its second-season event, Sats. This new event will be held in conjunction with Ethena and will feature BTC as the supporting asset. It is expected to run until September 2 (a duration of 5 months), or until the supply of USDe reaches $5 billion, whichever comes first.
As the most talked-about stablecoin project in the current market, Ethena Labs has reached its peak popularity with the TGE of ENA. Currently, the fully diluted valuation (FDV) of ENA exceeds $13 billion. For users interested in participating in the project, the most efficient way to earn ENA rewards is through the Sats event.
In this article, former Bankless analyst Donovan Choy provides a detailed analysis of the low, medium, and high mining strategies in the Sats event, as well as their potential returns. The article has been translated by Odaily Planet Daily.
Ethena’s first-season event, Shards, lasted for six weeks, and top miners such as Defi Maestro earned profits in the eight digits. If you missed the first season, it’s still not too late to participate in the second season event, Sats. Although the Pendle pool is gradually approaching its maximum limit, you still have a chance to participate.
Before we begin the data analysis, let’s briefly understand some of the basic concepts involved in these strategies.
First, Ethena is the issuance protocol for USDe, a self-liquidating synthetic dollar stablecoin. When you buy USDe during the second season event, your address will automatically accumulate points (sats), which will determine the ENA rewards you receive in the second season event. ENA is the governance token of Ethena and has a FDV of $14.3 billion at the time of writing this article.
Second, 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 hold an independent principal exposure, while YT allows users to hold an independent yield exposure. Since YT does not include the principal, its value will gradually approach zero at the expiration date. For the strategies mentioned in this article, we will focus on YT.
Third, Mantle and Arbitrum are Layer 2 networks. Pendle has been deployed on Ethereum as well as these networks.
Now, let’s take a look at the three mainstream mining strategies in the second season event:
Low-risk: Hold USDe on Ethereum (earn 5x sats per day) or lock it for at least 7 days (earn 20x sats per day).
Medium-risk: Purchase USDe YT on Pendle.
High-risk: Lock ENA for additional yield and purchase USDe YT on Pendle with an equal amount of funds.
Estimation of the total amount of Sats in the second season event
To calculate the specific potential returns, we need to answer a key question: how many sats will be distributed by the end of the second season event? Based on this crucial answer, we can quantify the airdrop returns and determine which strategies can achieve the best returns at their respective risk levels.
We conservatively estimate a 40% overall growth rate for sats. This means that by the end of the second season event (September 2, 2024), a total of 10.1 trillion sats will be distributed. It is worth mentioning that if the supply of USDe reaches $5 billion before the second season event ends, the event will also end. However, based on the current supply of $2.4 billion and its growth rate, it is unlikely to be achieved early.
Low-risk strategy: Hold and lock USDe
Now let’s calculate the potential returns of only holding and locking USDe, which is the lowest-risk strategy in this article. We have two assumptions: the second season will distribute 5% of the total supply of ENA (assuming the same as the first season), and the FDV of ENA during the airdrop in the second season is $20 billion (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 today with an efficiency of 20x (with 130 days remaining in the second season), you will earn a profit of $5,186. This translates to a 25.93% return on investment (ROI) and an annualized percentage yield (APY) of 72.45%.
Unlike the subsequent strategies, this strategy does not involve Pendle, so you can keep your entire principal.
Medium-risk strategy: Pendle YT
Now let’s look at the medium-risk strategy, which is to use Pendle’s USDe YT on the Ethereum mainnet to earn sats. With the same $20,000 capital (but with a duration of 92 days because the Pendle pool will expire), the expected ENA returns will be approximately $43,710. After deducting the principal, the net profit will be around $23,710 (since the value of YT will approach zero at expiration, you will lose the $20,000 principal), which is about 4 times the first strategy.
Under this strategy, the expected ROI is projected to reach 118.55%, and the expected APY is projected to reach 331.22%.
It is important to note that the calculations in the table are based on the current leverage ratio in the Pendle market. The real-time leverage ratio of YT will be affected by market demand and the expiration date.
If you choose to operate on the Pendle pool on Arbitrum instead of the Ethereum mainnet, the expected ROI and APY will be slightly lower, at 114.96% and 321.18%, respectively. This difference is due to the difference in real-time leverage ratios for YT between the Ethereum mainnet and Arbitrum.
You can also perform similar operations in the Pendle pools on Mantle or Zircuit, but the expected data will vary.
High-risk strategy: Lock ENA and add YT
Finally, let’s look at the highest-risk and highest-potential return strategy, which is to divide the principal in a 50:50 ratio. Half will be used to lock ENA, and the other half will be used to purchase Pendle’s USDe YT.
Why is it so complicated? This is because Ethena provides additional income incentives to users who “lock ENA that accounts for 50% of the total value of their USDe holdings.” By holding YT-ENA and YT-USDe in the same wallet, you will increase your total rewards in both pools by 50%.
This may also be the strategy adopted by the most savvy YT traders who fully utilize the airdrop rewards they received in the first season to achieve higher sats accumulation efficiency in the second season.
As shown in the table below, this strategy (deployed on Arbitrum) can achieve the highest returns – an expected ROI of 162.56% and an expected APY of 454.17%. However, it also comes with higher risks due to the lock-up of ENA.
It is worth noting that if you choose to use the Pendle YT strategy, you need to pay attention to the real-time leverage ratio. When the market is selling YT (which is more likely as the expiration date approaches), the leverage ratio will increase, and vice versa. Although the real-time leverage ratio will continue to change based on the market conditions of YT, once you buy YT, the leverage ratio for your own position will not change and will remain constant throughout the holding period.
