‘More stable returns’ – Ethena expands RWA exposure with AAA-rated CLO funds

Ethena protocol has begun expansion to RWA (real-world asset) tokenization to boost yields and decouple from crypto market cycles. On Friday, the firm behind the yield-paying stablecoin USDe said, 

The first asset category under evaluation is AAA CLOs, which sit at the top of the capital stack, with a zero default rate at the AAA level across the entire history of the asset class.

Collateralized Loan Obligations (CLOs) are a pool of loans from individual companies handled by asset managers. Think of it as an ETF index tracking different stocks of various companies and offered to investors. But instead of tracking stocks, CLOs track pooled corporate loans. 

Now, the AAA mark is the highest evaluation score rating firms like Moody’s can place on such financial products. The AAA rating means the product has the lowest level of default or high credit quality. 

Why Ethena is betting on CLOs

Beyond credit quality, Ethena is seeking an RWA asset with high liquidity and a low downside profile. According to the team, CLOs, especially the Janus Henderson Anemoy AAA CLO Fund, fit this criteria. 

Notably, during the financial crisis, like the COVID-19 era and high Fed interest rates, the broader CLO sector only fell 8% and 2%, respectively. In both scenarios, the S&P 500 Index (SPY) and broader credit segment dropped 33% and 22%, respectively. 

Besides, for a 5% drawdown, Ethena established that it took CLOs 5-8 days to bounce back. Compared to crypto, it’s been about eight months since the Bitcoin contraction began and is now down +50% from its $126K peak. 

For the unfamiliar, Ethena’s USDe leverages crypto funding rates for yield returns. Higher funding rates during bull runs lead to higher yields. But bear markets compress funding rates and yield, too. This worsens when recovery takes longer. 

That’s why it diversified reserve assets to RWA, starting with BlackRock’s BUIDL, which leverages U.S. Treasury bonds. 

Now, Ethena plans to expand RWA exposure and allocate $310 million to the Janus Henderson Anemoy AAA CLO Fund. According to the team, this will break the yield returns correlation with crypto market swings and would offer ‘more stable returns.’

RWA exposure breaks that correlation. AAA CLO yields are driven by short-rate policy, credit-spread dynamics, and loan market structure – none of which are tied to crypto positioning or sentiment.

The move comes after Ethena’s recent partnerships with Coinbase and Brazil’s largest exchange, Mercado Bitcoin. It is unclear whether these efforts will boost demand for USDe after dropping sharply since last October. 

Final Summary

• Ethena plans to expand reserve assets beyond BlackRock’s BUIDL, with CLOs as the next target. 
• According to the project, CLOs will effectively break correlation with crypto market swings and ensure stable yield returns for USDe.