The rapid growth of Ethena and its flagship stablecoin, USDe, has been one of the most attention-grabbing developments in DeFi lately. Bolstered by its collaboration with BlackRock and other factors, USDe’s Total Value Locked (TVL) surged past $3 billion within mere months—a growth rate rarely seen in stablecoin history. Ethena initially focused on creating a secure, high-quality stablecoin that remained resilient through significant market volatility. Now, Ethena seems to be setting its sights on the reigning leader in the crypto market: Tether. With a market share exceeding $160 billion, Tether’s dominance is facing a serious contender.

This article analyzes Ethena’s business model, USDe’s yield mechanism, and compares the advantages and disadvantages of Ethena and Tether. We’ll also discuss the potential evolution of the stablecoin market and the competitive roles that Ethena, Tether, and other stablecoins may play in the future landscape.

A Potential Challenger to Tether’s Dominance

Ethena’s strategic evolution is where it all begins. Initially a native DeFi stablecoin project, Ethena now positions itself as a comprehensive stablecoin competitor with an enhanced value proposition and refined distribution channels. Ethena has recently introduced USTb, entered into collaborations with traditional financial giants like BlackRock, and is benefiting from a favorable macroeconomic backdrop, such as the global trend of declining interest rates. All these factors seem to provide Ethena with a unique opportunity to elevate USDe to a dominant position in the crypto stablecoin market. However, substantial challenges remain, and Ethena’s success depends on a variety of factors.

In the current market environment, the prevalence of meme coins and speculative trading has taken center stage. Investors are focused on chasing short-term gains, often at the expense of the long-term value and fundamentals of projects. This trend, referred to by some as “financial nihilism,” reflects a single-minded pursuit of hype, with little to no regard for fundamentals, sometimes even disdain for them. While this approach delivered sizable or even massive returns for some during the recent bear market, its sustainability remains open to question.

However, the fundamental principles of the market remain: successful speculation is often, at the very least, grounded in some reality. The meme coin boom has been largely fueled by retail-driven behaviors, with retail investors frequently overlooking one crucial point: over the long term, the strongest-performing, highly liquid assets that display parabolic growth tend to be built on solid fundamentals. Only when these fundamentals hold up can a consensus be established among all participants—including retail investors, hedge funds, proprietary traders, and long funds.

The rapid rise of $SOL at the beginning of 2023 exemplifies this well; its growth was underpinned by consistent developer engagement and a flourishing ecosystem. Similar examples include Axie Infinity and Terra Luna, both of which experienced brief surges but eventually revealed inherent issues.

While “financial nihilism” may dominate the current market landscape, projects with strong product-market fit still have the potential to shift market consensus. Ethena could very well be a contender in this regard.

Investment Outlook for the High-Yield Stablecoin USDe and $ENA Token

Having analyzed the broader market trends, let’s explore the factors that contribute to Ethena’s potential. Currently, two core advantages stand out for Ethena: its value proposition and its distribution channels.

USDe’s value proposition is already highly compelling. Users can deposit 1 USD to receive a delta-neutral position balanced between collateralized ETH and short ETH exposure, and earn a yield simultaneously. Under normal interest rate conditions, sUSDe offers a sustainable yield of 10-13% APY, which places it among the highest-yielding stablecoins in the market. This powerful value proposition has propelled Ethena to become one of the fastest-growing stablecoins in history. It reached a peak TVL of $3.7 billion within seven months and stabilized at around $2.5 billion after interest rates began to decline. In terms of returns, USDe significantly outperforms other DeFi products.

Nevertheless, Tether maintains its dominant position, primarily due to its extensive access to distribution channels and unparalleled liquidity.

Now, let’s discuss distribution channels. Distribution is critical to the success of any new stablecoin. USDT’s dominant market position is largely due to its role as a base currency on nearly every centralized exchange. This endows it with a massive competitive edge that would take new stablecoins years to match. However, Ethena has successfully brought USDe to market through partnerships with major centralized exchanges like Bybit, and integrates automated yield features directly on the platform to lower the entry barrier for users. Currently, this ease of access is something that other decentralized stablecoins struggle to replicate.

Centralized exchanges currently hold around $38.6 billion in stablecoins, which is 15 times the current supply of USDe. Let’s do the math: if just 20% of these stablecoin holdings shifted to USDe, the available market for USDe would increase nearly fourfold. If all major CEXs adopt USDe as a collateral asset, the impact would be substantial.

Ethena‘s two major catalysts are declining interest rates and the launch of USTb.

Ethena’s sUSDe yield premium has consistently exceeded the Federal Reserve’s federal funds rate by 5-8% since its inception, which has attracted billions in inflows. However, the Fed’s interest rate cuts could affect USDe’s yield indirectly, though Ethena’s yield sources are independent of Fed policy.

USDe supply is highly sensitive to the yield spread against Treasuries. Historical data indicates that when the yield premium is high, demand for USDe rises accordingly—and vice versa. Thus, a future return of yield premiums may drive renewed growth for USDe.

The launch of USTb is seen as a game-changer. USTb, a stablecoin fully backed by BlackRock and Securitize’s tokenized fund BUIDL, can integrate with USDe to provide Treasury yields for sUSDe holders. This innovation mitigates concerns over Ethena’s yield stability.

Finally, let’s examine the $ENA tokenomics. $ENA faces challenges common to many VC-backed tokens: token unlocks for early investors and the team can increase selling pressure on the market. Since its peak, $ENA has dropped about 80% in price. However, inflation for $ENA will decrease sharply over the next six months, potentially easing the selling pressure. Currently, $ENA’s price appears to be in a recovery phase.

The Future Competitive Landscape of Stablecoins

Ethena has set a long-term goal of scaling USDe to a market cap in the tens or even hundreds of billions. Given the rising demand for stablecoins in global cross-border payments, a trillion-dollar market cap is not beyond reach. If Ethena succeeds in achieving this scale, the value of the $ENA token would likely surge as well.

However, this remains a challenging and uncertain journey. Whether Ethena can rival Tether in the stablecoin race is yet to be seen.

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