USDe Stablecoin Reaches $12 Billion Supply

Ethena's USDe has experienced remarkable growth, with its supply reaching $12 billion as of August 25, representing over 15% of the USDC supply, the second-largest stablecoin. This positions USDe as a significant challenger to entrenched stablecoins like USDC and USDT in the near future. The growth is driven by USDe's distinctive value proposition as a yield-bearing, crypto-native stablecoin that generates returns through delta-neutral hedging strategies. In contrast to non-yielding alternatives such as USDC and USDT, USDe offers holders an attractive APY of 9% to 11% by maintaining its peg through collateral positions in ETH and BTC, coupled with short futures positions, all while benefiting from positive funding rates in the current bull market. A considerable portion of the supply increase is fueled by advanced yield amplification strategies, where users stake USDe as sUSDe, tokenize it on Pendle, and then create recursive borrowing loops on Aave to maximize yields. Aave, a decentralized lending protocol, allows users to deposit their PT-sUSDe tokens as collateral to borrow more USDe. This borrowed USDe can then be restaked and re-tokenized on Pendle, forming a recursive loop that amplifies exposure to underlying yields. This mechanism has secured a significant amount of USDe within Pendle and Aave, establishing a reflexive growth cycle that generates substantial leveraged returns. While this growth illustrates a genuine demand for yield under favorable market conditions, the leverage-dependent nature of this ecosystem raises concerns about sustainability should funding rates shift negatively or market conditions worsen, mirroring trends seen in previous DeFi cycles. This article highlights insights from The Block's Data & Insights newsletter, shedding light on the trends defining the cryptocurrency industry. Disclaimer: The Block is an independent media outlet delivering news, research, and data. As of November 2023, Foresight Ventures is a major investor in The Block. Foresight Ventures invests in multiple companies within the crypto sector, while crypto exchange Bitget serves as an anchor LP for Foresight Ventures. The Block continues to operate independently, providing objective and timely information about the crypto industry.