Ethena’s Rapid Ascent in Finance
In a remarkable span of less than 18 months, Ethena has established itself as a pivotal player in both decentralized finance (DeFi) and centralized finance (CeFi) arenas. Key to this ascent is its USD-pegged stablecoin, USDe, which has rapidly ascended to a supply of $5 billion, marking it as the swiftest USD asset to achieve this milestone. This article will explore the underlying mechanisms that have fueled Ethena’s growth, focusing specifically on several critical components.
USDe’s Challenges and Stability
USDe’s journey has not been without its challenges. The asset has navigated significant market fluctuations, including eight declines in Bitcoin exceeding 10% and the unprecedented largest hack in cryptocurrency’s history. Nevertheless, USDe has maintained an impressive stability, remaining within 0.5% of its dollar peg over the past year, even as the protocol handled $3.3 billion in redemptions. Notably, since a pivotal event referred to as Liberation Day, $409 million in redemptions have been recorded.
Yield Benchmarking and Competitive Advantages
Moreover, sUSDe, Ethena’s stablecoin variant, has emerged as a benchmark yield gauge within the DeFi sector, providing insights to institutional investors in traditional finance (TradFi) regarding risk tolerance and market conditions. Ethena’s revenue structure leverages substantial competitive advantages; a significant slice of the annual percentage yield (APY) for sUSDe originates from funding rates associated with basis trades designed to hedge against spot asset exposure, historically showing positive rates for 93% of the previous year.
This system allows sUSDe to offer yields that often surpass the funding rates of Bitcoin, underlined by an average yield of 12.3% in the last six months, outpacing Maker/Sky’s 8.8% and Bitcoin’s 9.2%.
Strategic Navigation of Market Dynamics
Ethena’s strategy is contingent upon its ability to navigate a high-interest rate landscape, with the federal funds rate currently above 4%. A decrease in real interest rates could spur demand for leveraged crypto holdings, consequently elevating both the funding rates and sUSDe yields. Furthermore, Ethena’s yield is bolstered through adaptive collateral management, with strategies shifting among funding rate arbitrage, stablecoin holdings, and treasury yields.
Introduction of USDtb and Changes in Collateral
In December 2024, Ethena launched USDtb, a new stablecoin supported by a partnership with BlackRock’s BUIDL project, boasting a supply exceeding $1.4 billion. Currently, around 72% of Ethena’s collateral is tied to liquid stablecoins, up from earlier figures showing 53% in Bitcoin and 28% in Ethereum by the end of 2024. This transition highlights the changing dynamics in funding rates compared to Treasury yields.
Future Potential and Market Influence
Initially, Ethena encountered constraints in capacity; however, its supply now stands at approximately $5 billion, with its total value locked (TVL) representing merely 12% of the total open interest across Bitcoin, Ethereum, and Solana futures. Should its supply increase to $6 billion during a period of burgeoning open interest, its market share will remain compact at 14%.
As an integral component of the DeFi framework, Ethena has fortified its standing with both USDe and sUSDe, significantly influencing the ecosystem. USDe is responsible for around 60% of Pendle’s TVL and 12% within Morpho. Ethena’s influence in DeFi has seen upward momentum, capturing about 6% of the overall TVL in March. Despite a 23% decline in DeFi TVL year to date—triggered by recent market developments and a February incident involving ByBit—USDe’s TVL witnessed only a 17% dip. As Ethena continues to navigate this vibrant landscape, the focal points for the future will be identifying both opportunities and potential risks.
