Matthew Lorig Releases v2 of Optimal Control Paper on Ethena Yield-Bearing Stablecoin
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On October 20, 2026, Matthew Lorig released a revised paper titled Optimal Control of the Ethena Yield-Bearing Stablecoin on arXiv. The paper formulates and solves a stochastic control problem for Ethena protocol's core yield strategy, deriving explicit optimal control solutions for both the infinite-horizon discounted problem and the finite-horizon problem with terminal liquidation costs. The study uses the rate of simultaneously buying stETH and shorting an equivalent notional of ETH perpetual contracts as the control variable, incorporating both permanent price impact and temporary execution slippage. Ethena's core yield strategy is a delta-neutral combination of a long stETH position paired with an equivalent short ETH perpetual position, with returns coming from stETH staking rewards and funding rates collected from long perpetual holders when the perpetual contract trades at a premium.
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- arXiv q-finOptimal Control Study of Ethena's Yield-Bearing Stablecoin
This study formulates and solves a stochastic control problem for Ethena protocol's core yield strategy, which generates returns through a delta-neutral combination of long stETH positions and short ETH perpetual contracts of equal size. The model takes the rate of simultaneously buying stETH and shorting perpetual contracts as the control variable, incorporating both permanent price impact and temporary execution slippage. The study solves both the infinite-horizon discounted problem and the finite-horizon problem with terminal liquidation costs, obtaining explicit optimal control solutions in both cases.
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