Ethena has become the core of the DeFi revival wave.

Written by: Loki, BeWater

How does Ethena-USDe achieve a 50% monthly growth?

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

MakerDAO becomes the 'unexpected winner'

At the same time, MakerDAO has become the hidden winner. Currently, Maker's daily income has increased by more than 200% compared to one month ago, hitting a new high. The huge growth is closely related to Ethena. On one hand, the high staking APY of USDe has brought significant borrowing demand for sUSDe and PT assets, with the total borrowing scale of DAI against sUSDe and PT as collateral being about 570 million USD, with a borrowing utilization rate exceeding 80%, and a deposit APY of 12%. In the past month, the loan increment issued by Maker's D3M module through Morpho exceeded 300 million USD. 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%.

At the same time, the balance sheet shows that Maker has issued DAI loans totaling 2 billion USD to Morpho and Spark through the D3M module, close to 40% of Maker's asset side. These two items alone have generated 203 million USD in annual fees for Maker, contributing about 550,000 USD in daily income for MakerDAO, 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 drives up funding rates, affecting USDe's staking yield, while MakerDAO benefits from a complete and highly liquid funding influence chain and the 'central bank attribute' brought by the D3M module, becoming the water supplier for USDe. Morpho plays the role of 'lubricant' in this process. 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. For example, AAVE's DAI borrowing utilization rate exceeds 50%, and USDS's total deposits are close to 400 million USD; USDe/ENA related trading pairs have already occupied the second, fourth, and fifth rankings in Curve trading volume, and the first and fifth rankings in Pendle by 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 achieve extremely high but volatile yields through leverage, while DAI depositors receive relatively high but stable yields. Lower-tier arbitrageurs can earn profits by staking Warp BTC, ETH LST to mint/borrow DAI and earn the interest spread, while higher-tier players can obtain excess returns through combinations of DeFi protocols, leading to higher TVL, income, and token prices for the protocols.

The key to growth lies in whether the interest spread between USDe and DAI will always exist. Due to DAI providing a relatively predictable monetary policy, the focus of this question lies with USDe, with influencing factors including: ① Whether the bullish sentiment of the bull market can be sustained ② Whether Ethena can achieve higher APY distribution efficiency through improvements in economic models and market share ③ The competition for market share (e.g., the recent yield-generating stablecoin strategies launched by HTX and Binance)

Will D3M make DAI the next LUNA?

With growth comes concerns about D3M security. The basic characteristic of D3M is to allow direct dynamic generation of DAI tokens without the need for traditional collateral from another token. Some believe this falls under 'unanchored money printing'. However, from a balance sheet perspective, the DAI minted by D3M is collateralized by sDAI, which, compared to the traditional method of first increasing assets and then liabilities, the Mint process of D3M occurs simultaneously. Additionally, considering that sDAI is ultimately borrowed out as USDe, the collateral eventually turns into sUSDe or PT with more than 110% LTV, ultimately becoming 'a long-short synthetic asset position with more than 110% LTV ratio.'

Based on this, D3M will not directly turn DAI into UST or a non-collateralized stablecoin, but it will indeed bring some increased risks:

  • A high proportion of the D3M module will cause DAI to once again become 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 intermediate links like Morpho will further stack the risks.

  • Reduce the overall LTV of DAI