Article reprinted from: BeWater

Written by: Loki, BeWater

How does Ethena-USDe achieve 50% monthly growth?

In the past month, the total issuance of USDe increased from $2.4 billion to $3.8 billion, achieving over 58% monthly growth. The underlying logic is that after BTC broke new highs, bullish sentiment surged, and the increase in funding rates raised USDe's staking yield, leading to the growth of USDe. Although it has declined somewhat in recent days, the APY displayed on Ethena's official website on November 26 was around 25%.

MakerDAO becomes the 'unexpected winner'

Meanwhile, MakerDAO has become a hidden winner. Currently, Maker's daily revenue has increased by over 200% compared to a month ago, reaching a new high. The enormous growth is closely related to Ethena. On one hand, the high-quality staking APY of USDe has brought tremendous borrowing demand for sUSDe and PT assets, with the total scale of borrowing DAI using sUSDe and PT as collateral in Morpho being approximately $570 million, with a borrowing utilization rate exceeding 80%, and a deposit APY of 12%. In the past month, the total loan amount issued by Maker's D3M module through Morpho has exceeded $300 million. Beyond the direct path, the borrowing demand for sUSDe and PT has also pushed up the DAI utilization rate through other indirect routes, with Sparkfi's DAI deposit rate reaching 8.5%.

Meanwhile, the balance sheet shows that Maker has issued a total of $2 billion in DAI loans to Morpho and Spark through the D3M module, close to 40% of Maker's asset side. These two items alone have generated $203 million in annual fees for Maker, equivalent to a daily contribution of $550,000 to MakerDAO's daily revenue, accounting for 54% of MakerDAO's total annual fees.

Ethena has become the core of the DeFi revival wave

The growth path of USDe has become very clear at this point. The bullish sentiment from BTC's new highs is driving up funding rates, affecting USDe's staking yield, while MakerDAO benefits from the complete and highly liquid funding influence chain and the 'central bank properties' brought by the D3M module, becoming the water supplier for USDe. Morpho plays the role of a 'lubricant' in this process, with the three protocols forming the core of growth. Meanwhile, peripheral protocols like AAVE, Curve, and Pendle have also absorbed the benefits brought by USDe's growth to varying degrees, such as AAVE's DAI borrowing utilization rate exceeding 50%, and USDS deposits nearing $400 million; the USDe/ENA related trading pairs have already occupied the second, fourth, and fifth rankings in Curve's trading volume, and the first and fifth rankings in Pendle's liquidity ranking. Curve, CVX, ENA, and MKR have all achieved over 50% monthly growth.

Can the growth spiral be sustained?

In this growth spiral, almost every participant is a beneficiary. USDe leverage miners/borrowers can achieve extremely high yet variable yields through leverage, DAI deposit users obtain relatively stable but high yields, low-tier arbitrageurs mint/borrow DAI by staking Warp BTC, ETH LST and earn interest differentials, while high-tier players obtain excess returns through combinations of DeFi protocols, and protocols reap higher TVL, income, and coin prices.

The key to whether growth occurs lies in whether the interest spread between USDe and DAI will persist. Since DAI offers a relatively predictable monetary policy, the focus of this issue lies with USDe, with influencing factors including: 1) Whether the bullish sentiment of a bull market can be sustained 2) Whether Ethena can achieve higher APY distribution efficiency through improvements in its economic model and market share 3) The competition for market share (for example, the recent interest-bearing stablecoin strategies launched by HTX and Binance)

Will D3M make DAI the next LUNA?

Accompanying the growth is a concern for the safety of D3M. The basic feature of D3M is that it allows the direct dynamic generation of DAI tokens without the need for traditional collateral from another token. Some opinions suggest that this is 'unanchored money printing'. However, from the balance sheet perspective, the DAI minted by D3M is collateralized by sDAI. Compared to the traditional method of first increasing assets and then increasing liabilities, the Mint process of D3M occurs simultaneously. Additionally, considering that sDAI is ultimately lent out as USDe, the collateral eventually becomes sUSDe or PT with over 110% LTV, ultimately becoming 'a long and short synthetic asset position with more than 110% LTV'.

Based on this, D3M will not directly make DAI into UST or an under-collateralized stablecoin, but it will indeed bring some increase in risk:

  • A high proportion of the D3M module will once again make DAI a 'shadow stablecoin', similar to how PSM previously turned it into a 'shadow USDC'

  • The operational risks, contract risks, and custody risks of Ethena will be transmitted to DAI, and intermediate links like Morpho will further stack the risks.

  • Reduce DAI's overall LTV.