Article Source: Felix

Author: DMD, Crypto KOL

Compiled by: Felix, PANews

Since the rise of DeFi, it has become clear to participants in the crypto market that a decentralized, censorship-resistant stablecoin is needed. So far, MakerDAO's DAI has been in the lead, temporarily surpassed by UST in market capitalization in 2022.

However, DAI's over-collateralization model is capital inefficient, and the fees generated by the MakerDAO protocol only go to the DAO, not to stablecoin holders. Ethena Labs' USDe is an excellent product in many ways, especially considering that USDe investors can obtain substantial returns by productizing the futures basis + funding trades through Ethena.

This article aims to analyze why it is believed that Ethena's USDe is destined to surpass DAI as the leading decentralized stablecoin, and to examine the current stablecoin landscape, the token economics of USDe, as well as the valuation and scenario analysis of ENA.

Current stablecoin landscape

Many important trends are occurring in the stablecoin space:

  • The market share of decentralized stablecoins is increasing: from 4.1% at the beginning of the year to 5% in November

  • The market share of income-generating stablecoins is continually expanding: from 0.1% at the beginning of the year to 2.1% in November

  • These two changes may seem minor, but they represent significant growth, as stablecoins overall have grown over 40% this year, reaching $183 billion

Ethena's USDe is both a decentralized stablecoin and an income-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 capitalization of stablecoins to grow to $1 trillion by the end of the century, especially with the possibility of Trump winning the election and stablecoin regulations expected to pass this year. Therefore, Ethena's growth opportunities are enormous.

USDe Token Economics

USDe Token Economics consists of two parts:

  • Returns paid to USDe stakers: Based on the total supply of USDe, staking ratio, and the returns obtained from the Ethena protocol. Data shows that so far this year, USDe stakers have an average yield of 19.4%, with about 45% of USDe staked.

The following diagram shows that over $100 million in returns have been paid solely to USDe stakers:

  • Collateral yield: When users mint USDe, they deposit one of several other stablecoins. Ethena converts these stablecoins into one of several types of collateral, and then short-sells these collaterals using futures. Thus, it maintains collateral delta neutrality while earning both the basis and funding rates.

Assuming a specific collateral breakdown (see below) and obtaining the yield from Ethena's dashboard (https://app.ethena.fi/dashboards/hedging/BTC), the returns obtained by the protocol can be derived:

Combining these two points, we can derive Ethena's total profit and loss (PNL): estimated annualized profit and loss of $62 million:

This makes ENA's MC/revenue multiple reach 26 times, more attractive than some other leading DeFi projects (not based on FDV, token unlocks are significant resistance for the project).

ENA Valuation: Scenario Analysis

From the above, some assumptions can be drawn, which can be used to estimate the valuation of ENA by the end of next year. These assumptions are important for the upcoming 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 returns to USDe investors that are higher than the returns they earn from collateral, while still maintaining an operating revenue margin of $0.04 per $1 USDe market value.

Note: Collateral yield is based on the collateral breakdown shown above and applied over the year. Therefore, actual numbers may vary slightly.

Ethena's growth is based on two numbers:

  • Growth of total market capitalization of stablecoins

  • USDe's market share

The baseline scenario is highlighted in blue: USDe's market share doubles, and stablecoins grow by 75% over the next year. The author considers this estimate quite conservative, and the bullish scenario (orange) is also very reasonable: USDe grows to a 5% market share, with total stablecoins growing by 150%, bringing USDe's market capitalization close to $23 billion. Green represents the bearish scenario, where USDe's market share does not grow, while total stable market capitalization increases slightly by 25%.

Based on the above assumptions of a $0.04 income margin, ENA's income situation for next year is as follows:

Based on a hypothetical 30 times revenue multiple, the market capitalization of ENA can be derived in the following table. Please note, the author expects 2025 to be a very strong year for crypto assets, with valuations exceeding fundamentals. 30 times is only slightly higher than ENA's current 26 times, so the potential upside in the following scenario analysis is much higher:

Finally, based on the market capitalization table and the expected circulating supply of ENA (which will nearly double by the end of 2025), a price target and upside potential can be derived (see previous data table).

Conclusion

The author's basic prediction is that ENA's target price by the end of next year will be $2.25, representing a 300% appreciation. The author's optimistic prediction is a target price of $5, which corresponds to over 800% returns. The author emphasizes that a 30 times price multiple is conservative, and actual returns could be higher.

Ethena is experiencing various catalysts, which gives the author confidence in the above situation:

USDe has been added as collateral for margin on Deribit:

https://x.com/DeribitExchange/status/1859905540912288192

USDe has been added as collateral for Aave, and sUSDe is about to launch:

https://x.com/ethena_labs/status/1857232687326802306

Recent governance proposals, where Ethena Labs protocol revenue will be used for the benefit of 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 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, although token unlocks are certainly an issue, the author believes that the growth opportunities outlined for Ethena far outweigh the selling pressure from token unlocks.

Expecting USDe to surpass 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, does ENA deserve to be bought?