Ethena’s USDe Surges to Third-Largest Stablecoin

Ethena Labs' yield-bearing stablecoin, USDe, has recently overtaken FDUSD, making it the third-largest dollar-pegged token. Its market cap has surged by 75% since mid-July, reaching about $9.3 billion, according to data from The Block. The increased demand for USDe likely stems from President Donald Trump signing the GENIUS Act, a landmark law regulating dollar-backed stablecoins in the U.S. Additionally, Ethena's collaboration with Anchorage Digital for custody services may have boosted supply, making USDe a compliant synthetic dollar in American markets. USDe offers holders an appealing variable return on investment, with yields between 10% and 19% APY. This attracts investors looking for greater returns compared to the current yields of U.S. Treasury bonds. The overall supply of dollar tokens has been on the rise for seven consecutive months, reaching nearly $257 billion, up from $200 billion in January. Currently, only Tether's USDT and Circle’s USDC, valued at $164 billion and $63 billion respectively, have larger market capitalizations than USDe. Launched in early 2024, USDe employs a delta-neutral approach that aligns on-chain collateral with short perpetual swap positions to maintain its $1 peg. Initially, the model faced skepticism due to yield volatility and the high stakes of collateral management, with comparisons drawn to the failed Terra UST stablecoin from 2022. However, USDe's operation differs fundamentally from UST. Unlike UST, which was not fully collateralized and depended on market algorithms, USDe is completely backed by crypto assets and includes hedging strategies. Ethena is continually expanding liquidity through new exchange partnerships and diversifying its collateral with assets like Bitcoin and major stablecoins, enhancing overall stability and security. The rise in USDe’s market cap, beginning around July 16-17, corresponded with Ethena's total value locked, which now stands as the seventh largest in decentralized finance with approximately $9.4 billion integrated into its contracts, according to The Block. Disclaimer: The Block is an independent media outlet that provides news, research, and data. As of November 2023, Foresight Ventures is a majority investor in The Block and actively invests in the crypto industry. This article is meant for informational purposes and should not be construed as legal, tax, or investment advice.