Ethena Labs, the developer of the Ethereum ETH +0.85% -based stablecoin USDe, has raised $14 million in a strategic funding round.

Dragonfly, Brevan Howard Digital and BitMEX founder Arthur Hayes' family office, Maelstrom, co-led the round, Ethena Labs said Thursday. Other investors included PayPal Ventures, Franklin Templeton, Fidelity via Avon Ventures, and several crypto exchanges including Binance, Deribit, Gemini and Kraken.

Ethena had commitments of over $50 million for the round but capped it at $14 million as it did not need more cash at the moment, founder and CEO Guy Young told The Block. The round began in late December and closed this week, Young said, adding that it was structured as a simple agreement for future equity with token warrants.

The round brought Ethena's valuation to $300 million, he added.

Ethena also publicly launched its USDe stablecoin following a stealth launch last December that quickly saw over $224 million in total value locked. USDe could soon surpass $1 billion in TVL and "will soon be a credible challenger to Tether," according to Hayes, who also backed Ethena's $6 million seed round last year via Maelstrom. Hayes is also the founding advisor of Ethena.

Ethena was born taking inspiration from Hayes' blog post "Dust on Crust" last year, where he outlined his vision for a crypto-native, derivative-backed stablecoin operating independently of the traditional financial banking system.

USDe is an Ethereum-based stablecoin secured by derivatives. It achieves price stability through "delta-neutral" hedging across centralized and decentralized venues. Put simply, USDe is backed by a long staked ether position and a short ether position.

The approach ensures that "losses or gains by either position are offset to provide a dollar-denominated return profile," Ethena said. "This is conceptually identical to typical cash and carry strategies performed with treasuries and futures."

To create USDe, Ethena allows users to deposit U.S. dollars, ETH or liquid staking tokens as collateral.

Ethena's second product is a dollar-denominated savings instrument called an "Internet bond." The bond provides value accrual via sUSDe (the staked version of USDe) by capturing both the inherent staked ether yield and the basis in futures markets, Ethena said. Over the last two months, the bond has averaged an annualized yield of between 12-20%, Ethena added.

Founded last year, Ethena is based in Lisbon, Portugal. With fresh capital in hand, the firm plans to grow its current team of 12 people by hiring quant engineers and business development executives in Asia, Young said.

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