Author: DMD, Crypto KOL
Compiled by: Felix, PANews
Since the rise of DeFi, it has been clear that there is a need for a decentralized, censorship-resistant stablecoin for participants in the crypto market. So far, MakerDAO's DAI has been in the lead, only temporarily surpassed by UST in terms of market cap in 2022.
However, the over-collateralization model of DAI is inefficient in capital usage, and the fees generated by the MakerDAO protocol go only to the DAO, not to stablecoin holders. Ethena Labs' USDe is an excellent product in many ways, especially considering that USDe investors can earn substantial yields through Ethena by productizing futures basis + financing trading.
This article aims to analyze why Ethena's USDe is destined to surpass DAI to become the leading decentralized stablecoin, and to study the current stablecoin landscape, USDe's token economics, 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 the overall growth of stablecoins has exceeded 40% so far this year, reaching $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 market cap of stablecoins to grow to $1 trillion by the end of this century, especially with Trump's potential victory and the hope that stablecoin regulations will pass quickly this year. Therefore, Ethena has enormous growth opportunities.
USDe Token Economics
USDe token economics consists of two parts:
Yield paid to USDe stakers: Based on the total supply of USDe, staking ratio, and the revenue generated by the Ethena protocol. Data shows that the average yield for USDe stakers this year has been 19.4%, with about 45% of USDe staked.
The following chart shows that more than $100 million has been paid in yield to USDe stakers:
Collateral yield: When users mint USDe, they deposit one of several other stablecoins. Ethena converts these stablecoins into one of several collaterals, and then shorts these collaterals using futures. Therefore, it maintains collateral delta neutrality while earning basis and funding rates.
Assuming a specific collateral split (see below), and obtaining the yield from the collateral from Ethena's dashboard (https://app.ethena.fi/dashboards/hedging/BTC), the yield obtained by the protocol can be derived:
Combining these two points, the total profit and loss (PNL) of the Ethena protocol can be derived: estimated annualized PNL is $62 million:
This results in an MC/income ratio of 26x for ENA, which is more attractive than some other leading DeFi projects (certainly not based on FDV, token unlocking is an important resistance for the project).
ENA Valuation: Scenario Analysis
From the above, some assumptions can be drawn, which can be used to estimate ENA's valuation by the end of next year. These assumptions are crucial for the following analysis.
One point to note is that Ethena's business model relies on a certain proportion of USDe not being staked. This allows them to pay yields to USDe investors that exceed the yields they earn from collateral while still maintaining a revenue profit margin of $0.04 per $1 USDe market cap.
Note: The collateral yield is based on the collateral split shown earlier and will be applied annually. Therefore, actual numbers may vary slightly.
Ethena's growth is based on two numbers:
Growth of total stablecoin market cap
Market share of USDe
The fundamentals are highlighted in blue: where USDe's market share has doubled, and stablecoins are expected to grow by 75% next year. The author considers this estimate quite conservative, and the bullish scenario (in orange) is also very reasonable: USDe grows to a 5% market share, total stablecoin growth of 150%, bringing USDe's market cap close to $23 billion. Green represents the bearish scenario, wherein USDe's market share does not grow, while the total stable market cap slightly increases by 25%.
Based on the above assumption of a $0.04 income profit margin, the income situation for ENA next year is as follows:
Based on an assumed 30x revenue multiple, the market cap of ENA can be derived as shown in the table below. Please note that the author expects 2025 to be a very strong year for crypto assets, with valuations exceeding fundamentals. The 30x multiple is only slightly above ENA's current 26x, hence the potential upside in the following scenario analysis is much higher:
Finally, a price target and upside potential can be derived based on the market cap table and the expected circulating supply of ENA (which will nearly double by the end of 2025) (see previous data table).
Conclusion
The author's basic forecast is a target price of $2.25 for ENA by the end of next year, appreciating 300%. The author's optimistic forecast is a target price of $5, equivalent to over 800% returns. The author emphasizes that the 30x price multiple is conservative, and actual returns may be higher.
Ethena is experiencing various catalysts, which gives the author confidence in the situation mentioned above:
USDe has been added as collateral for Deribit:
https://x.com/DeribitExchange/status/1859905540912288192
USDe has been added as collateral for Aave, and sUSDe is also about to launch:
https://x.com/ethena_labs/status/1857232687326802306
Recent governance proposal, 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, ENA also has some risks, namely protocol-related risks (smart contract, funding gaps, liquidation risks), but the author believes the team has widely considered these issues and will continue to take measures to address them. Finally, although token unlocking is certainly a concern, the author believes that the growth opportunities outlined for Ethena in this article far outweigh the selling pressure from token unlocking.
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 rebound be worth buying?
