Being bullish crypto has historically implied a high demand for leverage - which can easily be proxied by funding rates on exchanges. High demand for leverage leads to higher annualized funding, which in turn leads to higher yield via the funding rate arbitrage (basis trade).
Funding still remains the easiest way to bet on a bull market. If the assumption is that the bullish trend for BTC/majors will return in a interest rate cut environment (i.e late Q4 2025/2026), then betting on higher funding remains optimal.
As highlighted by Multicoin Capital on their Ethena thesis here, there is a pickup in spread between interest rates and funding rates in a declining interest rate environment - i.e. as one of source of yield dries up, funding help make up the lost yield in a bull market.
Source: Multicoin Capital
The thesis on Ethena is quite clear from above - it is a bet on funding rates as it is a synthetic stablecoin that generates yield via funding rate arbitrage. This is further confirmed when we look at median BTC/ETH funding rates (annualized) v/s ENA price since inception.
Ethena's currently has around $8b in its stablecoin USDe and is doing $370m in annualized fees -which implies a FDV/Fees multiple of 21. Do note that this is fees and not revenue (which is significantly lower given most of the fees are given back to the stakers of USDe as yield).
The core problem with Ethena is the potential sell pressure from persistent unlocks. As per Cryptorank, 1.5% of total supply of ENA is to be unlocked every month until March 2028 -> this implies a monthly sell pressure of $69m at current prices. This sell pressure is roughly 1% of monthly volumes (assuming all volumes are organic).
Overall, for Ethena, the thesis is relatively clear but the murky tokenomics raise concerns and potentially dampen the upside for the token.
Source: Cryptorank
Solomon is the latest MetaDao ICO project which aims to do what Ethena is doing i.e. generate yield on a synthetic stablecoin (USDv) via funding rate arbitrage - but there are a couple of caveats.
In terms of getting the yield - its relatively straightforward and similar to Ethena whereby an entity can stake Solomon's stablecoin (USDv) to get sUSDv - which enables them to receive the yield generated via the funding rate arbitrage.
One core difference is the yield on USDv itself. Solomon aims to offer 'Yield as a Service (YaaS)' i.e. an entity can earn yield (expected to be 0.25 to 1% per year) by just holding the USDv stablecoin. This is only for permissioned (KYC) participants but would potentially enable DAOs or even DEXs to generate yield for LPs.
On the tokenomics side, 50% of the max SOLO (Solomon's token) is potentially reserved for the team - this allocation is more incentive oriented i.e. chunks of the allocation unlock as the price goes up from the initial ICO price.
There is an 18 month cliff for the initial unlock with a 3 month TWAP after every tranche of the unlock - this is the core difference between ENA and SOLO in terms of any potential sell pressure from unlocks.
Lastly, from a valuation perspective, we can try and estimate a very rough 'fair' market value based on Ethena's current TVL relative to Solomon. Solomon, being in a private beta, only manages around $1.4m in TVL - which is 0.0175% of Ethena's current TVL. A 0.0175% of ENA's current FDV ($2B) implies a fair market value of $35m.
On average, with the exception of AVICI, MetaDAO's recent launches have returned 4% on average after 10 days of trading post ICO. This implies that the post ICO launch period likely offers entries below ICO price, especially given the current bearish broader market conditions.
Overall, Solomon fits the Ethena thesis i.e. capture funding rate arbitrage trade especially in a low interest rate environment. While there might be concerns around valuation (potentially is already close to its 'fair' value) and the recent returns of MetaDAO launches, the clean tokenomics and a strong thesis makes for an interesting case.
