Written by: Loki, BeWater

How did Ethena-USDe achieve 50% monthly growth?

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

MakerDAO has become an 'unexpected winner'

Meanwhile, MakerDAO has become a hidden winner. The current daily income of Maker has increased by over 200% compared to a month ago, setting a new high. The massive growth is closely related to Ethena; on one hand, the high-quality staking APY of USDe has brought significant lending demand for sUSDe and PT assets, while the total scale of borrowing DAI with sUSDe and PT as collateral in Morpho is approximately $570 million, with a borrowing utilization rate exceeding 80% and a deposit APY of 12%. In the past month, the total incremental loans issued by the Maker D3M module through Morpho have exceeded $300 million. In addition to direct paths, the borrowing demand for sUSDe and PT has also pushed up the DAI utilization rate through other indirect channels, 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 alone have generated $203 million in annualized fees for Maker, contributing $550,000 in daily income for MakerDAO, accounting for 54% of MakerDAO's total annualized fees.

Ethena has become the core of the DeFi revival wave.

The growth path of USDe has become very clear here; the bullish sentiment from BTC's new high drives up funding rates affecting USDe's staking yield, while MakerDAO benefits from a complete and highly liquid funding impact chain along with the 'central bank attributes' brought by the D3M module, becoming the water supplier for USDe. In this process, Morpho plays the role of a 'lubricant'. The three protocols form the core of growth, while peripheral protocols such as AAVE, Curve, and Pendle have also absorbed the benefits brought by the growth of USDe to varying degrees, such as AAVE's DAI borrowing utilization rate exceeding 50% and USDS deposits nearing $400 million; USDe/ENA related trading pairs have already occupied the second, fourth, and fifth positions in Curve's trading volume rankings, and Pendle ranks first and fifth in liquidity. 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's leveraged miners/lenders can obtain extremely high but volatile yields through leverage, DAI deposit users receive relatively high but stable yields, lower-tier arbitrageurs earn interest spreads by staking Warp BTC, ETH LST to mint/borrow DAI, and higher-tier players achieve excess returns through combinations of DeFi protocols, while the protocols reap higher TVL, income, and token prices.

The key to growth lies in whether the interest spread between USDe and DAI will always exist. Given that DAI provides a relatively predictable monetary policy, the focus of this issue is on USDe, with influencing factors including: ① Whether the bullish sentiment in 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 Competition for market share (e.g., the recent yield-bearing stablecoin strategies launched by HTX and Binance).

Will D3M make DAI the next LUNA?

Accompanying growth is concern over the security of D3M. The fundamental characteristic of D3M is to allow the direct dynamic generation of DAI tokens without requiring traditional collateral from another token. Some argue that this belongs to 'unanchored money printing'. However, from the perspective of the balance sheet, 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 ultimately becomes sUSDe or PT with over 110% LTV, culminating in 'a long and short synthetic asset position with over 110% LTV ratio'.

Based on this, D3M will not directly turn DAI into UST or under-collateralized stablecoins, but it will indeed bring about some increase in risks:

  • An excessively high proportion of the D3M module could make DAI once again a 'shadow stablecoin', similar to how the previous PSM made it a 'shadow USDC'.

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

  • Reduce the overall LTV of DAI.