Funding rate yield is the interest that perpetual futures traders pay to hold leveraged positions. In crypto, that rate is almost always positive – meaning longs pay shorts. Ethena captures this by holding ETH spot and shorting ETH perpetual futures simultaneously, then passing the income to USDe stakers as yield. The result is a stablecoin that earns returns without relying on traditional lending or liquidity mining.
Funding rate yield is the periodic payment between long and short traders in perpetual futures markets. Ethena's USDe captures this yield through a delta-neutral strategy – holding equal long spot and short perpetual positions on ETH – so that price movements cancel out while the funding income flows to sUSDe holders.
This article breaks down the mechanics, historical performance, risks, and how to access this yield through DeFi.
What Are Perpetual Futures Funding Rates
Perpetual futures (perps) are the most traded instruments in crypto. Unlike traditional futures that expire on a set date, perps have no expiration. To keep the perp price anchored to the spot price, exchanges use a mechanism called the funding rate.
The funding rate is a recurring payment – typically settled every 8 hours – between long and short traders:
- When funding is positive: Longs pay shorts. This happens when the perp price trades above spot, meaning demand for long exposure exceeds short exposure
- When funding is negative: Shorts pay longs. This happens when the perp price trades below spot, meaning short demand exceeds long demand
The rate itself fluctuates based on the price gap between the perp and the underlying spot asset. Larger gaps mean higher rates. When the market is bullish and traders pile into longs, funding rates can spike significantly – sometimes to 0.05-0.1% per 8-hour interval, which annualizes to 60-130% APY during those bursts.
Funding rates exist on every major centralized exchange – Binance, Bybit, OKX, Deribit – and on decentralized perp protocols. They are publicly visible and historically well-documented.
Why Funding Rates Are Usually Positive in Crypto
This is the structural insight that makes Ethena's model work. In crypto, funding rates are positive the majority of the time because traders overwhelmingly want to go long.
Several forces drive this persistent bias:
- Speculative demand: Crypto attracts directional traders who believe prices will rise. There are far more natural buyers than natural sellers of perpetual futures
- Hedging asymmetry: Traditional finance has market makers and institutions who routinely short. Crypto's short side is thinner, so funding rates compensate shorts for providing the other side of the trade
- Leverage preference: Retail traders use perps to lever up on upside. Spot holders who want to hedge already own the asset – they do not need to short perps. This imbalance means longs typically outnumber shorts
- Bull market amplification: During strong uptrends, demand for leveraged long exposure surges, pushing funding rates higher. Even during neutral or mildly bearish markets, funding rates tend to stay positive or near zero rather than deeply negative
The data supports this. Over any 12-month period in crypto history, the aggregate funding rate across major exchanges has been positive far more days than negative. This is not a guarantee – it is a statistical tendency driven by market structure.
How Ethena Captures Funding Rate Yield
Ethena's strategy is conceptually simple: collect the funding rate by being short, while hedging away all price risk.
Here is the step-by-step mechanism:
- Step 1 – Collateral deposit: Users deposit ETH, stETH, or stablecoins to mint USDe
- Step 2 – Spot position: Ethena holds the deposited ETH (or liquid staking tokens like stETH) as a spot long position
- Step 3 – Perpetual hedge: Ethena simultaneously opens a short perpetual futures position of equal notional value on centralized exchanges
- Step 4 – Delta-neutral result: The long spot and short perp cancel each other out. If ETH rises 10%, the spot gains 10% and the short loses 10% – net zero. If ETH falls 10%, the reverse happens – still net zero
- Step 5 – Funding rate collection: While the positions are open, the short perp collects funding payments from longs (when funding is positive). This is the yield
The beauty of this design is that yield generation is completely independent of price direction. ETH can crash 50% or rally 200% – the delta-neutral portfolio does not care. The only thing that matters is whether the funding rate is positive or negative.
Ethena also earns ETH staking yield on its stETH holdings – roughly 3-4% APY – which adds a baseline return on top of the funding rate income.
The combined yield from ETH staking and funding rate collection is what flows to sUSDe holders. In a strong bull market with elevated funding rates, this yield can reach 20-30%+ APY. In quieter markets, it settles closer to 5-8%.
Historical Funding Rate Performance
Funding rate yields have varied significantly with market conditions:
- 2024 performance: Average annualized funding rate yield was approximately 11%. This was driven by the Bitcoin ETF approval rally and broad crypto market strength. During peak periods (March-April 2024), sUSDe yield exceeded 30% APY
- 2025 performance: Average annualized funding rate yield has moderated to approximately 5%. Market conditions shifted to a less aggressively bullish environment, reducing the premium longs are willing to pay
- Negative funding streaks: The longest consecutive stretch of negative funding was 13 days. During this period, the short positions were paying longs rather than collecting. This is notable because positive funding streaks have lasted over 176 consecutive days during bullish stretches
- Distribution pattern: Funding rates are not stable – they spike during rallies, compress during consolidation, and occasionally flip negative during sharp selloffs. The yield is inherently variable and cyclical
For context, even the lower end of funding rate performance – around 5% annualized – competes favorably with traditional stablecoin lending yields. And during bull markets, the outperformance can be dramatic.
If you want to understand how this compares to other stablecoin yield approaches, see the stablecoin yield strategies guide for a full breakdown.
sUSDe: How Staking USDe Captures the Yield
Not all USDe holders earn yield. Yield only accrues to users who stake their USDe into sUSDe (staked USDe).
The mechanism works like a vault token:
- Deposit: You send USDe to Ethena's staking contract and receive sUSDe in return
- Yield accrual: As Ethena earns funding rate income and staking rewards, the value of sUSDe increases relative to USDe. Your sUSDe balance stays the same, but each sUSDe is worth more USDe over time
- Redemption: When you unstake, you receive back more USDe than you deposited – the difference is your accumulated yield. There is a 7-day cooldown period for unstaking
This is the same rebasing model used by stETH (Lido) and other yield-bearing tokens. The key difference is the source of yield – stETH earns from Ethereum consensus rewards, while sUSDe earns from perpetual futures funding rates and ETH staking combined.
One important distinction: USDe that is not staked earns nothing. If you hold USDe in your wallet or use it in a DeFi protocol without staking it first, you are not capturing funding rate yield. This is by design – the unstaked USDe effectively subsidizes higher yields for sUSDe holders.
The Reserve Fund: Protection Against Negative Funding
When funding rates flip negative, Ethena's short positions start losing money instead of earning it. This is where the reserve fund comes in.
Ethena maintains a dedicated reserve fund – funded by a portion of earnings during positive funding periods – that absorbs losses during negative stretches. The reserve fund acts as a buffer so that sUSDe holders do not see their principal decline during short-lived negative funding events.
Key details about the reserve:
- Funding source: A percentage of yield earned during positive funding periods is diverted to the reserve rather than distributed to sUSDe holders
- Activation: The reserve automatically covers funding payments during negative periods. sUSDe holders continue to see their token value hold steady (or grow very slowly from the staking yield component)
- Capacity limits: The reserve is not infinite. A prolonged period of deeply negative funding – lasting months rather than days – could theoretically exhaust the reserve. At that point, sUSDe yield would drop to zero or potentially become slightly negative
- Historical resilience: Given that the longest negative streak has been 13 days, the reserve has never been seriously stressed. However, past performance does not predict future scenarios – a crypto market structure shift could change the dynamics
The reserve fund is a critical piece of Ethena's design. Without it, sUSDe holders would need to accept yield volatility that swings between highly positive and meaningfully negative. The reserve smooths this into a more predictable experience.
Risks of Funding Rate Yield
Funding rate yield is not risk-free. Understanding the specific risk vectors is essential before committing capital.
Funding Rate Reversal
The core risk. Funding rates are positive most of the time, but not all the time. A sustained bear market, a major crypto deleveraging event, or a structural shift in derivatives markets could flip funding rates negative for an extended period.
If the reserve fund is exhausted during such a period, sUSDe holders would see their yield go to zero – and in an extreme scenario, could face principal erosion. The probability of this is low based on historical data, but it is non-zero.
Centralized Exchange Counterparty Risk
This is often underappreciated. Ethena executes its short perpetual positions on centralized exchanges – primarily Binance, Bybit, and OKX. If one of these exchanges were to freeze withdrawals, become insolvent, or claw back positions, Ethena could lose a portion of its hedging collateral.
Ethena mitigates this by:
- Distributing positions across multiple exchanges (not concentrating on a single venue)
- Using off-exchange settlement providers (like Copper ClearLoop and Ceffu) that hold collateral separately from exchange custody
- Monitoring exposure limits per venue
These mitigations reduce but do not eliminate the risk. Centralized exchange failures – as demonstrated by FTX in 2022 – are low-probability but high-impact events.
Depeg Risk
USDe could trade below $1 if confidence in the system wavers. Triggers could include negative funding draining the reserve, exchange counterparty issues, or broader market panic causing a rush to exit. A depeg would mean that selling USDe yields fewer dollars than expected.
Ethena's redemption mechanism – which allows institutional participants to redeem USDe for underlying collateral – provides a floor, but redemptions take time and depend on functioning markets.
Smart Contract Risk
Like any DeFi protocol, Ethena's staking contracts, minting mechanisms, and governance systems carry smart contract risk. Ethena has been audited by multiple firms, but audits reduce rather than eliminate this risk.
For a broader understanding of DeFi safety considerations, see Is DeFi Lending Safe.
How Funding Rate Yield Compares to Traditional Stablecoin Lending
The comparison with standard DeFi lending is what makes funding rate yield interesting from a portfolio perspective.
Traditional stablecoin lending – supplying USDC or USDT to protocols like Aave v3 or Compound – typically yields 3-8% APY. This yield comes from borrower interest payments and varies with borrowing demand. It is relatively stable and predictable, with yields moving gradually over weeks rather than hours.
Funding rate yield through sUSDe has averaged 5-11% APY over the past two years, with peaks well above 20% during bull markets. The yield source is completely different – derivatives market structure rather than lending demand – which means it is not correlated with traditional lending rates.
Key differences:
- Yield source diversification: Funding rate yield and lending yield come from different mechanisms. Holding both provides genuine portfolio diversification – when one source compresses, the other may expand
- Volatility profile: sUSDe yield is more variable than lending yields. It can spike dramatically during bullish periods and compress during bearish ones. Lending yields move more gradually
- Risk profile: Lending carries smart contract and utilization risk. sUSDe carries funding rate, counterparty, and depeg risk. The risk profiles are different, not inherently better or worse
- Capital efficiency: sUSDe is a yield-bearing token that can be used as collateral in DeFi lending protocols. This means you can earn funding rate yield and simultaneously use your sUSDe in other strategies – something not possible with a standard lending position
For a complete picture of how DeFi lending works across protocols, see the complete guide to DeFi lending.
How to Access USDe Yield Through Superlend
Superlend – a non-custodial DeFi lending aggregator – provides two paths to access USDe-related yield.
Discover sUSDe Markets
The Discover page on Superlend aggregates lending and borrowing rates across 350+ markets on 11+ chains. You can filter for sUSDe to see where it is accepted as collateral, what borrow rates you can get against it, and which protocols offer the most favorable terms.
This is useful if you already hold sUSDe and want to use it productively in DeFi lending – for example, depositing sUSDe as collateral to borrow stablecoins for other strategies while continuing to earn funding rate yield on the sUSDe itself.
Loop Vaults for Amplified Yield
For users who want to amplify their funding rate yield exposure, Superlend offers Loop Vaults in the Vaults section. Loop Vaults automate the looping strategy – depositing sUSDe, borrowing stablecoins, buying and staking more USDe, and repeating – in a single transaction.
Instead of manually executing 5-10 looping steps across multiple protocols, Loop Vaults handle the entire cycle. You choose your desired leverage level, and the vault manages rebalancing and position management.
For a detailed walkthrough of the looping strategy and how Superlend automates it, read the Ethena USDe Loop guide.
Choosing Between Simple sUSDe and Looping
The right approach depends on your risk tolerance and yield expectations:
- Hold sUSDe only: You earn the base funding rate yield (currently ~5% APY) with no leverage risk. Your only risks are the Ethena-specific ones described above. This is the simpler, lower-risk path
- Loop sUSDe via Superlend: You amplify the yield spread between sUSDe returns and stablecoin borrow costs. At 3x leverage, a 5% base yield with 3% borrow cost could become approximately 9% net yield. But you also take on liquidation risk if sUSDe depegs or if borrow rates spike above your yield
Both approaches can be compared and executed through Superlend, which surfaces the best available rates across protocols in one interface.
Key Takeaways
- Funding rate yield comes from a structural bias in crypto derivatives markets where longs pay shorts
- Ethena captures this yield through a delta-neutral strategy – long ETH spot, short ETH perps – and passes it to sUSDe holders
- Historical performance has averaged ~11% in 2024 and ~5% in 2025, with significant variation based on market conditions
- The reserve fund protects sUSDe holders during negative funding periods, but is not unlimited
- Primary risks include prolonged negative funding, centralized exchange counterparty exposure, and depeg scenarios
- Funding rate yield is not correlated with traditional lending yields, making it a genuine diversification tool
- Superlend provides access to sUSDe markets for comparison and Loop Vaults for leveraged strategies
Rates are variable and subject to change. Past performance does not guarantee future results. Not financial advice. DeFi involves risks including smart contract vulnerabilities, counterparty risk, and depeg risk. Leveraged positions carry additional risk of liquidation. Only use funds you can afford to lose. DYOR.