Author: Chetanya, researcher at The Spartan Group; Translation: Xiaozou from Golden Finance
Ethena Labs is the fastest-growing player in the lucrative field of stablecoins — as evidenced by the skyrocketing earnings of the likes of Tether and Maker.
I am a big supporter of non-fiat-backed stablecoins, and projects that can solve the stablecoin trilemma will have a huge market opportunity.
USDe’s TVL surged to $2.3 billion. Ethena quickly became the highest-yielding DeFi protocol, second only to ETH and MKR.
Interestingly, I am amazed by the TVL resilience after the recent leverage craze, and how well the protocol manages redemptions and the USDe peg. This will boost confidence in the product and attract a large number of USDe holders when the market rebounds.
1. Optimistic about USDe
sUSDe provides a scalable way to earn double-digit market-neutral returns, making it a valid alternative to USDT/USDC. As the Anchor protocol showed in the last cycle (ATH TVL: $18 billion), the demand for stable returns is very large. I hope traders, exchanges, funds, etc. will keep a portion of USDe stablecoins while gradually deploying funds.
Seraphim and his team quickly integrated USDe into large DeFi protocols, including Frax Finance, Pendle, Morpho Labs, etc. USDe showed early signs of DeFi expansion. With the upcoming CeFi integration (Bybit is the first), USDe has a good chance of becoming one of the largest stablecoins.
The growth of BTC and SOL collateral may not be factored in. This could significantly expand the TAM and bring USDe’s TVL to over $10B this cycle.
2. Valuation
When comparing ENA to lending and stablecoin protocols in terms of TVL, fees, and revenue metrics, ENA appears to be overvalued in a fully diluted scenario. However, in terms of MC (market cap), the valuation appears to be reasonable.
I think MC is a more appropriate indicator, at least in the short term, as the first major unlock will start in early 2025. Until then, the floating range will remain around 10-20%.
3. Data prediction
In my base case, I expect ENA to grow to ~$10B TVL. This would allow it to earn over $1B in fees and generate over $500M in revenue depending on USDe utilization (or sUSDe exchange rate). ENA's upside could be 5-10x, implying a $5-10B market cap.
These forecasts assume that this cycle will be as prosperous as the previous one.
4. Risks
Ethena’s design risks are largely handled well. However, a more pressing question is how they will manage TVL once the Points/Shards program ends. They are able to generate high protocol revenues and offer abnormally high rates to sUSDe holders, in large part due to the low collateralization rate of USDe (currently around 13.5%). Essentially, USDe holders are currently incentivized not to stake to earn more “Points/Shards”.
After the points program ends, USDe holders will not accrue any value, which means there will be no natural demand for USDe. I expect some of the gains to be shared with USDe holders, or the sUSDe/USDe exchange rate will converge to 100%, reducing protocol revenue and thus reducing the utility of ENA.
But I believe that Ethena’s founder and team will have some strategies to deal with this issue in the future.
