Ethena’s synthetic USD dollar has emerged as the fastest growing USD-pegged stablecoin over the past 30 days after its market capitalization skyrocketed 73% to a record high of $4.77 billion.
The wave has made USDe the third largest stablecoin, surpassing DAI’s market cap of $4.7 billion. However, USDe still lags behind Tether’s USDT at $135 billion and Circle’s USDC at $40 billion.
Ethena Labs co-founder and CEO Guy Young said:
“We are now starting to see the effects as USDe blackholes every stablecoin in DeFi as credit markets are skewed to a new base rate. However, it has become clear that DeFi is not currently large enough to completely close the arb and that larger capital pools are needed. The next step for Ethena is to connect directly with asset managers ranging in value from $100 billion to over 1 trillion who can provide the necessary capital.”
Meanwhile, the rapid growth reflects the momentum we saw earlier this year, when USDe’s market capitalization reached the $3 billion mark just four months after its public launch in February.
What drives USDe’s growth?
Market observers pointed out that the rise in the USDe reflects strong momentum, fueled by bullish sentiment and demand for alternative yield-bearing assets.
Unlike USDT and USDC, which are widely used for transactions, most USDe tokens are held to earn rewards. This suggests that users view USDe primarily as a return-generating asset and not as a medium of exchange.
USDe offers particularly attractive returns generated by Ethereum staking rewards, hedged against short-term funding rates for ETH. According to Ethena websitesUSDe holders can earn an annualized rate of return (APY) of 29%.
In particular, some critics have drawn parallels between Ethena’s model and the ill-fated Terra-Luna project. In May 2022, Terra’s algorithmic stablecoin collapsed after its aggressive growth strategy became unsustainable, leading to a significant downturn in the cryptocurrency market.
Nevertheless, demand remains high, evidenced by the fact that supply and lending rates are significantly higher than USDT and USDC on Aaf.
Aave is the largest DeFi lending protocol in the crypto ecosystem, with a total value locked (TVL) of approximately $30 billion.
