Author: DMD, Crypto KOL
Compiled by: Felix, PANews
Since the rise of DeFi, it has been clear for cryptocurrency market participants that there is a need for a decentralized, censorship-resistant stablecoin. So far, MakerDAO's DAI has been leading the way, only temporarily surpassed by UST in terms of market capitalization in 2022.
However, the over-collateralization model of DAI is inefficient in capital usage; the fees generated by the MakerDAO protocol only benefit the DAO, not the stablecoin holders. Ethena Labs' USDe is an excellent product in many ways, especially considering that USDe investors can obtain substantial returns by utilizing futures basis + financing trading products through Ethena.
This article aims to analyze why Ethena's USDe is destined to surpass DAI to become the leading decentralized stablecoin and to explore the current stablecoin landscape, the tokenomics of USDe, and the valuation and scenario analysis of ENA.
Current Stablecoin Landscape
Many significant trends are occurring in the stablecoin space:
The market share of decentralized stablecoins is increasing: rising from 4.1% at the beginning of the year to 5% in November
The market share of yield-generating stablecoins is continuously expanding: from 0.1% at the beginning of the year to 2.1% in November
These two changes may seem small, but they represent significant growth, as stablecoins overall have grown by more than 40% this year to reach $183 billion.
Ethena's USDe is both a decentralized stablecoin and a yield-generating stablecoin. USDe has grown from $85 million at the beginning of the year to $4 billion now.
It is not unreasonable to expect the stablecoin market cap to grow to $1 trillion by the end of this century, especially with Trump winning the election and stablecoin regulations likely to pass as soon as this year. Therefore, Ethena has enormous growth opportunities.
USDe Tokenomics
The tokenomics of USDe consists of two parts:
Returns paid to USDe stakers: based on the total supply of USDe, the staking ratio, and the income generated by the Ethena protocol. The data shows that USDe stakers have averaged a return of 19.4% so far this year, with about 45% of USDe being staked.
The following chart shows that over $100 million in returns have been paid to USDe stakers:
Collateral income: When users mint USDe, they deposit one of several other stablecoins. Ethena converts these stablecoins into one of several collateral types, then shorts these collaterals using futures. Thus, it keeps the collateral delta neutral while simultaneously earning on the basis and funding rate.
Assuming a specific collateral split (see below) and obtaining the income from that collateral from Ethena's dashboard (https://app.ethena.fi/dashboards/hedging/BTC), the income generated by the protocol can be deduced:
Combining these two points, we can derive the total PNL (Profit and Loss) for the Ethena protocol: an estimated annualized PNL of $62 million:
This results in ENA's MC/income multiple reaching 26 times, which is more attractive than some other top DeFi projects (though this is not based on FDV, and token unlocks are a significant resistance for this project).
ENA Valuation: Scenario Analysis
From the above, several assumptions can be made, which can be used to estimate ENA's valuation by the end of next year. These assumptions are important for the coming analysis.
One point to note here is that Ethena's business model relies on a certain proportion of USDe not being staked. This allows them to pay higher returns to USDe investors than they earn from the collateral while still maintaining an operating revenue profit margin of $0.04 for every $1 of USDe market value.
Note: The collateral yield is based on the collateral split shown earlier and will be applied for the entire year. Therefore, actual figures may vary slightly.
Ethena's growth is based on two numbers:
Growth of Total Stablecoin Market Value
Market Share of USDe
The basic situation is highlighted in blue: the market share of USDe has doubled, and stablecoins are expected to grow by 75% next year. The author believes this estimate is quite conservative, and the bullish scenario (in orange) is also very reasonable: USDe grows to a 5% market share, with total stablecoin growth of 150%, bringing USDe's market value close to $23 billion. Green represents the bearish scenario, where USDe's market share does not grow, while the total stablecoin market value slightly increases by 25%.
Based on the above assumption of $0.04 revenue profit margin, ENA's income situation for next year is as follows:
Based on an assumed 30 times income multiple, ENA's market value can be derived from the table below. Note that the author expects 2025 to be a very strong year for crypto assets, with valuations exceeding fundamentals. 30 times is slightly higher than ENA's current 26 times, so the potential upside in the following scenario analysis is much greater.
Finally, price targets and upside potential can be derived based on the market value table and ENA's expected circulating supply (which will nearly double by the end of 2025) (see previous data table).
Conclusion
The author's basic prediction is that ENA's target price by the end of next year is $2.25, representing a 300% appreciation. The author's optimistic prediction is a target price of $5, which corresponds to more than 800% returns. The author emphasizes that a 30 times price multiple is conservative, and actual returns may be higher.
Ethena is experiencing multiple catalysts, which gives the author confidence in the above situation:
USDe has been added as margin collateral for Deribit:
https://x.com/DeribitExchange/status/1859905540912288192
USDe has been added as collateral for Aave, and sUSDe is also about to be launched:
https://x.com/ethena_labs/status/1857232687326802306
Recent governance proposals, where Ethena Labs' protocol revenue will be used to benefit the protocol and ENA holders, with more details to be announced at the end of the month:
https://x.com/EthenaFndtn/status/1857470376655385070
Of course, there are some risks associated with ENA, namely protocol-related risks (smart contracts, funding gaps, liquidation risks), but the author believes the team has extensively considered these issues and will continue to take measures to address them. Finally, while token unlocks are certainly a concern, the author believes that the growth opportunities outlined for Ethena in this article far outweigh the selling pressure from token unlocks.
Looking forward to USDe surpassing DAI, once this happens, Ethena will continue to grow into one of the most important DeFi protocols in cryptocurrency, alongside Aave, Uniswap, Lido, and Raydium. Both USDe and ENA token holders can benefit from this growth.
Related reading: Business Analysis of Ethena: After an 80% drop, will ENA be worth buying?
