Ethena, the native cryptocurrency of Ethereum-based DeFi projects, has witnessed a significant surge as the platform touts direct stablecoin competition with industry giant Tether. As a result, ENA price soared 25% to $0.35, giving it a market capitalization of over $920 million. Additionally, ENA’s daily trading volume soared 180% to $233 million.
Ethena’s USDe stablecoin competes with Tether’s USDT
Within months, Ethena Finance has grown the USDe stablecoin to a market capitalization of $3 billion, making it the fastest-growing DeFi project in history. Popular crypto trader Eugene Ng Ah Sio said that Etena will begin the transition from a DeFi-native stablecoin to a formal stablecoin, in the face of competition from Tether.
Additionally, Ethena recently announced the UStb stablecoin in collaboration with BlockRock and Securitize, further strengthening its market position and positioning USDe as a major competitor. Analysts explain that the USDe stablecoin performs well in both the value proposition and distribution aspects.
Looking at the value proposition of the USDe stablecoin, users can deposit $1 and earn yield while receiving a delta neutral position split between staked ETH and short ETH positions. At the moment, sUSDe offers the highest sustainable yield of any stablecoin, with an APY of between 10-13%. This has enabled Ethena’s USDe top to emerge as the fastest growing stablecoin, reaching $3.7 billion in total value locked in (TVL) within seven months of launch. The image below shows how USDe outperforms other DeFi products in terms of yield.
Additionally, Ethena has an advantage in the distribution part, similar to Tether’s USDT, giving DeFi products a huge moat in the market. In addition, Bybit, the world’s second largest centralized exchange, has integrated automatic yield accrual functionality for the USDe stablecoin into its platform. Therefore, users now have access to a superior form of stablecoin collateral without any friction.
There are currently approximately $38.6 billion of stablecoins on centralized exchanges, which is 15 times the current supply of USDe. If just 20% of this amount chose to earn 5-10% instead of holding USDe, the available market for USDe could almost quadruple, says Eugene N.A. he pointed out. BitMEX co-founder Arthur Hayes is also supporting this growth.
Send me a mess. https://t.co/a1zMVYe1Sm
— Arthur Hayes (@CryptoHayes) October 11, 2024
USDe will benefit from Fed rate cuts
As of its current yield output, Ethena’s USDe offers a 5-8% premium to the federal funds rate, thereby attracting yield-seeking funds. With the Fed’s rate cutting cycle starting last month with a 50bps rate cut, this gap will widen further, making USDe an even more attractive option for investors.
The Fed is likely to cut interest rates by 2 percentage points over the next 24 months, bringing rates to 3% to 3.5%. One could argue that there is an indirect positive effect on funding rates because when markets rise, risk appetite returns, leverage demand increases, and funding rates rise. These factors combine to create a strong driver for spreads and highlight the true value proposition of Ethena products.
Commenting on this development, a cryptocurrency analyst wrote:
“We believe a recovery in the yield premium will lead to a re-acceleration of USDe growth. Importantly, this tailwind is understandable and attractive to most market participants.”
Furthermore, analysts believe that the launch of the UStb stablecoin by Ethena will further accelerate the adoption of USDe. Analysts wrote:
“The market is underestimating this because, assuming we are satisfied that exchanges like Binance do not collapse, there is literally no reason to hold stablecoins in cryptocurrencies other than USDe going forward. That’s why (even if it explodes, USDe will not go to zero because it is fully collateralized by BTC and stETH).
Amid all these developments, ENA price has increased by 60% in the last month, posting strong growth. The ENA price has stalled somewhat since reaching a high of $1.45 in April of this year, but the market will now undergo a major reversal.
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Bhushan Akolkar
Bhushan is a FinTech enthusiast with a deep understanding of financial markets. His interest in economics and finance led him to focus on the emerging blockchain technology and cryptocurrency market. He is passionate about continuous learning and stays motivated by sharing the knowledge he gains. In his free time, Bhushan enjoys reading thriller fiction novels and sometimes hones his cooking skills.
Disclaimer: The content presented may contain the personal opinion of the author and is subject to market conditions. Do your market research before investing in cryptocurrencies. The author or publication assumes no responsibility for your personal financial loss.
