Demand for high yield makes Ethena’s USDe third largest stablecoin

Ethena’s synthetic USDe dollar has emerged as the fastest-growing USD-pegged stablecoin over the past 30 days after its market capitalization skyrocketed 73% to an all-time high of $4.77 billion.

The surge has propelled USDe to become the third-largest stablecoin, surpassing DAI’s $4.7 billion market cap. 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 beginning to now see the effects as USDe blackholes every stablecoin in DeFi while warping lending markets to a new base rate However it has become evident that DeFi is insufficiently sized at the moment to close the arb entirely and larger pools of capital are required The next step for Ethena is plugging directly to $100b-1tn+ asset managers who can provide the capital required.”

Meanwhile, the rapid growth mirrors the momentum seen earlier this year when USDe’s market cap hit the $3 billion mark just four months after its public launch in February.

What is driving USDe’s growth

Market observers pointed out that USDe’s surge reflects strong dynamics fueled by bullish sentiment and demand for alternative yield-bearing assets.

Unlike USDT and USDC, which are widely used for transactions, the majority of USDe tokens are held to earn rewards. This suggests that users primarily view USDe as a yield-generating asset rather than a medium of exchange.

Indeed, USDe offers particularly attractive yields generated through Ethereum staking rewards hedged against short funding rates for ETH. According to Ethena’s website, sUSDe holders can earn an annual percentage yield (APY) of 29%.

Notably, 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 its supply and borrow APR rates significantly outpace those of USDT and USDC on Aave. 

Aave is the largest DeFi lending protocol in the crypto ecosystem, boasting a total value locked (TVL) of around $30 billion.

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