Ethena's USDe has continued its remarkable growth, with its supply surging to $12 billion as of Aug. 25, more than 15% of USDC supply, the second-largest stablecoin. This positions USDe as a strong contender to challenge the dominance of stronghold stablecoins like USDC and USDT in the coming months.
The growth stems from USDe's unique value proposition as a yield-bearing, crypto-native stablecoin that generates returns through delta-neutral hedging strategies. Unlike non-yielding alternatives such as USDC and USDT, USDe offers holders 9%-11% APY by maintaining a peg through collateral positions in ETH/BTC paired with short futures positions, capitalizing on positive funding rates in the current rising market environment.
Much of the supply expansion is driven by sophisticated yield amplification strategies, where users stake USDe as sUSDe, tokenize it on Pendle, then create recursive borrowing loops on Aave to achieve leveraged yields.
Aave, a decentralized lending protocol, allows users to deposit their PT-sUSDe tokens as collateral to borrow additional USDe. This borrowed USDe can then be restaked and re-tokenized on Pendle, creating a recursive loop that amplifies exposure to the underlying yields. The mechanism has locked a significant supply of USDe in Pendle and Aave, creating a reflexive growth cycle that pays significant leveraged returns.
While the growth reflects genuine demand for yield in favorable market conditions, the leverage-dependent nature of the ecosystem raises questions about sustainability should funding rates turn negative or market conditions deteriorate, echoing patterns seen in previous DeFi cycles.
This is an excerpt from The Block's Data & Insights newsletter. Dig into the numbers making up the industry's most thought-provoking trends.
