The rapid growth of Ethena and its flagship product, the USDe stablecoin, is one of the most eye-catching events in the DeFi field in recent times. At the same time, due to its cooperation with BlackRock and various influences, in just a few months, the TVL of USDe has exceeded 3 billion US dollars, a growth rate that is rare in the history of stablecoins. Ethena initially focused on creating a safe and reliable high-quality stablecoin, which has remained stable after experiencing severe market fluctuations. Now, Ethena's goal seems to be aimed directly at the big brother of the crypto market - Tether. And Tether's market share of more than 160 billion US dollars is also facing challenges.
In this article, the author will analyze Ethena’s business model, USDe’s revenue mechanism, and compare the advantages and disadvantages of Ethena and Tether, and then explore the future development trend of the stablecoin market, as well as the position of stablecoins such as Ethena and Tether in the future competitive landscape.
Potential stocks to challenge Tether's hegemony
It all starts with Ethena's strategy. From a pure DeFi native stablecoin project, Ethena hopes to transform into a comprehensive stablecoin competitor with higher value proposition and improved distribution channels. The recent announcement of the launch of USTb, cooperation with traditional financial giants such as BlackRock, and the downward trend of global interest rates have provided a favorable external environment for Ethena. It seems that Ethena has the opportunity to build USDe into the dominant stablecoin in the cryptocurrency field. However, the challenges are still huge. Can Ethena succeed? The result depends on many factors.
Judging from the current market environment, meme coins are prevalent and speculation has become dominant... Investors are keen to pursue short-term gains, regardless of the long-term value and fundamentals of the project. This phenomenon is called "financial nihilism" by some people, that is, the pursuit of narratives alone, indifference to fundamentals, or even contempt. Although this strategy has brought considerable or even huge returns to some investors in the past bear market, its sustainability is questionable.
However, the basic laws of the market still exist: successful speculative behavior is often based on at least a certain basis in reality. The prosperity of meme coins is mainly due to the behavior dominated by retail investors in the market. This type of user often overlooks that in the long run, the parabolic growth shown by the best performing highly liquid assets is often based on solid fundamentals. Only when the fundamentals are supported can a consensus be formed among all participants (including retail investors, hedge funds, proprietary trading and long funds).
$SOL's rapid growth in early 2023 is a good example. At that time, its growth was based on the premise of continuous developer participation and ecological prosperity. Similar examples include Axie Infinity and Terra Luna, which also experienced short-term surges, but eventually exposed their original problems.
Although "financial nihilism" is the mainstream trend in the current market, projects with strong product-market fit still have the potential to change market consensus.
Ethena may be a potential player.
Investment prospects of high-yield stablecoin USDe and $ENA tokens
After analyzing the market trends, let’s take a look at why Ethena has such great potential. At present, it can be seen that the project has two main killer weapons: value proposition and distribution channels.
The value proposition of USDe has been demonstrated very clearly. Users who deposit $1 receive a delta-neutral position split between collateralized ETH and short ETH positions, and earn profits at the same time. Under normal funding interest rates, the sustainable rate of return (annualized rate of return 10-13%) provided by sUSDe ranks among the best among all stablecoins. It is this strong value proposition that has propelled Ethena to become one of the fastest-growing stablecoins in history, with TVL peaking at $3.7 billion within 7 months and stabilizing at around $2.5 billion after funding rates fell. USDe is significantly higher than other DeFi products in terms of income. However, Tether still dominates. The key lies in Tether's access to more channels and its extremely high liquidity.
Let's talk about the distribution problem. Distribution channels are crucial to the success of any new stablecoin. USDT is able to dominate the market because it is a benchmark currency in almost all centralized exchanges. This is a huge competitive advantage that takes years for new stablecoins to achieve. However, Ethena successfully brought USDe to the market through cooperation with large centralized exchanges such as Bybit, and built an automatic income function into the platform, lowering the threshold for users to use it. At present, this is difficult for other decentralized stablecoins to replicate.
Currently, centralized exchanges hold about $38.6 billion in stablecoins, which is 15 times the current supply of USDe. Let’s do the math. If 20% of these stablecoins were to switch to USDe, the available market for USDe would grow nearly 4 times. If all major CEXs use USDe as a margin asset, the impact would be self-evident.
The two main catalysts facing Ethena are: one is the structural decline in interest rates, and the other is the launch of USTb.
Since Ethena was founded, sUSDe's yield premium has been 5-8% higher than the Federal Reserve's federal funds rate. This structural advantage has attracted billions of dollars in capital inflows. However, the Fed's interest rate cut policy may have an impact on USDe's yield. Although the interest rate cut itself has nothing to do with Ethena's source of income, it may have an indirect impact on the funding rate.
The supply of USDe is very sensitive to the yield spread relative to Treasury bonds. Historical data shows that when the yield premium is higher, the demand for USDe also increases accordingly. And vice versa. Therefore, the return of the yield premium in the future may once again drive the growth of USDe.
The launch of USTb is considered a key factor in changing the rules of the game. USTb is a stablecoin 100% backed by BlackRock and Securitize's tokenized fund BUIDL. It can be integrated with USDe to provide sUSDe holders with treasury bond returns. This, to a certain extent, eliminates market concerns about the stability of Ethena's returns.
Finally, let's analyze the economic model of the $ENA token. The $ENA token faces a common problem of many VC coins: the unlocking of tokens by early investors and teams will trigger increased selling pressure in the market. Since its high, the price of $ENA has fallen by about 80%. However, the inflation rate of $ENA will be significantly reduced in the next 6 months, which may reduce the selling pressure. At present, the price of $ENA has bottomed out and rebounded.
The future competitive landscape of stablecoins
Ethena now sets its long-term goal of expanding the size of USDe to tens or even hundreds of billions of dollars. Considering the growing demand for stablecoins for international cross-border payments, a trillion-dollar market cap is not completely impossible. If Ethena can achieve this goal, the value of the $ENA token will also increase significantly.
However, I believe that this is still a journey full of challenges and uncertainties. Whether Ethena can compete with Tether for the stable currency remains to be tested by time.
