Considering the fundamental driving factors and the easing of inflationary pressures, ENA will reclaim the $1 level.
Author: Eugene
Compiled by: 1912212.eth, Foresight News
Ethena is the fastest growing DeFi product in history. Within just a few months, its yield-bearing stablecoin has reached a scale of $3 billion, and no other stablecoin has grown as fast as USDe since its inception. The first chapter of the Ethena story focuses on building a secure and superior stablecoin. It has withstood the test of extreme market volatility, and is undoubtedly now aiming at its biggest competitor in the stablecoin space - Tether, with a market cap of $160 billion.
Ethena has transformed from a "DeFi native stablecoin" to a compliant stablecoin with an excellent value proposition and significantly improved distribution channels. The launch of USTb, the latest participation of BlackRock's treasury products, and the decline in interest rates have all created favorable conditions for Ethena, which are expected to make USDe the mainstream stablecoin in the cryptocurrency space.
Due to the many inefficiencies in the market, you now have the opportunity to buy the strongest and rising target in the largest vertical sector of the cryptocurrency space at a quarter of the WIF market cap.
The Existing Metanarrative
This cycle has been dominated by MEME. The market has realized that paying for tokens of unreliable projects with valuations that are absurdly high and far exceed the costs of most VCs is a manipulated game. In contrast, we have fully embraced the more free and open MEME game. The continued outperformance of MEME relative to other Altcoins has led some to believe this is "financial nihilism" - ignoring all fundamentals in pursuit of narratives. While this has been the most profitable trade in the cryptocurrency space over the past two years, it has become increasingly prevalent, even earning MEME an unprecedented level of attention.
As the market has become intoxicated by the MEME frenzy, it has gradually forgotten the eternal lesson that all markets teach: the hottest speculation is always built on a grain of truth.
The rise of MEME is primarily a phenomenon of the native cryptocurrency market, driven by retail participants. What these retail participants have forgotten is that the best-performing liquid assets in the long run have always been built on parabolic growth at the fundamental level. This is because only fundamental anchors can provide a Schelling point (a key point or equilibrium recognized by all participants) for the entire native cryptocurrency capital pool (retail, hedge funds, prop trading funds, long-only liquidity funds). This is the microcosm of the Solana story this cycle, where investors who focused on developer engagement early in 2023 were able to form a fundamental thesis on the growth of the Solana ecosystem and enjoyed nearly 10x valuation growth over the following year.
You may remember the 500x surge in Axie Infinity liquidity and how they attracted hundreds of millions of players at the peak of market frenzy. Another well-known example is the $40 billion global circulation of Luna's UST, which could have yielded a 1000x return if you bought in at the bottom and correctly assessed the risk of the deflationary spiral and exited in time.
Although financial nihilism is the dominant trend of this cycle, one might argue that it is the lack of strong product-market fit (PMF) in current venture projects that has led to this distorted consensus view. However, it only takes one project to restore the dream of the masses.
I believe Ethena is the strongest candidate to occupy this position in this cycle.
Fundamentals
When it comes to stablecoins, there are really only two things that truly matter.
Value Proposition - Why should you hold it?
Ethena's product and value proposition are quite simple. Deposit $1, and you will receive a delta-neutral position composed of staked ETH and an Ethereum short position, earning a yield. Assuming normal funding rates, sUSDe offers the highest sustainable yield among stablecoins today (10-13% annualized yield). This substantive value proposition has made Ethena the fastest growing stablecoin in history, reaching a peak TVL of $3.7 billion in just 7 months, and now stabilizing around $2.5 billion as funding rates have declined.
The "delta-neutral position" mentioned here refers to an investment strategy that aims to offset the impact of price changes by simultaneously holding long and short positions in an asset, in order to maintain a relatively stable market value of the position. In Ethena's case, this strategy is achieved by staking ETH (long) and holding a short position in ETH, with the goal of earning a yield while keeping the position value relatively stable.
sUSDe, as the stablecoin issued by Ethena, has attracted a large number of users by offering high yields, thereby achieving rapid growth. However, it should be noted that high yields often come with certain risks, and investors should pay attention to potential risk factors while pursuing high returns. Additionally, changes in funding rates can also affect the yield and total locked value of the stablecoin.
At a glance, it is clear that sUSDe is the undisputed king of high yields in the cryptocurrency space. Why would you still hold Tether today and forgo all the potential earnings you could get in your dollars? It's likely because Tether is the easiest to acquire and has the strongest liquidity. This brings us to our second point...
Distribution - How easy is it to acquire and use it as a currency?
When launching any new stablecoin, the distribution channel is the most important factor in determining its adoption rate. USDT is the number one stablecoin today because it is the base currency for any market on every centralized exchange. This alone is a huge moat, and it takes years for emerging stablecoins to start capturing market share.
However, USDe has done it. With the support of Bybit, it has become the second largest stablecoin available to users on the second largest centralized exchange, with a built-in function to automatically generate yields. This allows users to access a higher-quality stablecoin collateral without adding additional friction. To date, no other decentralized stablecoin has been adopted by any major centralized exchange, making this achievement truly remarkable.
The total amount of stablecoins stored on centralized exchanges is currently around $38.6 billion, which is 15 times the current supply of USDe. Even if only 20% (a small portion) of that supply decides that earning 5-10% on USDe is better than forgoing it, this would mean the addressable market for USDe would nearly quadruple from this starting point. Now, imagine what would happen if all major centralized exchanges adopted USDe as collateral?
Catalyst 1: Structural Decline in Interest Rates
Since Ethena's inception, sUSDe has maintained an average relative yield premium of 5-8% over the Federal Funds rate. This structural advantage has led to tens of billions of dollars of yield-seeking cryptocurrency capital flowing into Ethena in the first 9 months after its launch.
Powell's 50 basis point cut to the Federal Funds rate in September marked the beginning of a long-term decline in global risk-free rates. The current dot plot estimates the Federal Funds rate to stabilize between 3% and 3.5%, meaning rates will decline by about 2% over the next 24 months. However, this is unrelated to Ethena's source of yield. In fact, one could argue this has a positive indirect drip effect on financing rates (market up -> risk-adjusted returns -> increased leverage demand -> higher financing rates).
When these factors are combined, this powerful combination causes the yield spread to surge, which is the true value proposition of the Ethena product.
When financing rates decline
The benchmark yield premium has dropped from around 10% to 2%
The supply of USDe is extremely sensitive to the yield differential relative to US Treasuries
Referring to the two charts above, it is clear that the market's demand for USDe is extremely sensitive to the yield premium relative to US Treasuries. In the six months prior to the increase in the yield premium, the supply of USDe increased sharply. As the premium has decreased, the demand for USDe has naturally also gradually weakened. Based on this historical data, I am confident that once the yield premium returns, the growth of USDe will reaccelerate. Importantly, this tailwind factor is not only easily understood by most market participants, but also very attractive to them.
Over time, I expect this will significantly increase Ethena's visibility in the market, just as Luna and UST, with the 20% guarantee on UST in Anchor, came to dominate when DeFi yields began to decline in 2021.
Catalyst 2: USTb
USTb was first launched two weeks ago, and in my view, it is absolutely a game-changer that can greatly promote the adoption of USDe.
A brief overview of USTb is as follows:
- A stablecoin fully backed by Treasuries, provided by BlackRock and Securitize;
- Functionally identical to other stablecoins that derive yield from Treasuries, but without the additional custodian/counterparty risk;
- Can become a subset of USDe, so that sUSDe holders can earn Treasury yields when traditional finance yields exceed crypto yields
The market has not given this enough attention, because after the launch of USTb, assuming you are comfortable with exchanges like Binance not collapsing (even if they do, USDe will not go to zero as it is fully collateralized by BTC and stETH), there is no reason to hold any other stablecoin in the crypto space other than USDe. In the worst case, you will earn yields similar to your competitors, and if not, you will earn according to your market risk preference.
By integrating USTb into the backend, the volatility of sUSDe's yields is now significantly smoothed, thereby eliminating the biggest criticism about Ethena's lack of sustainable yields in a bear market. Reducing yield volatility also increases the likelihood of future centralized exchange integrations.
Under the influence of these two catalysts, Ethena's stablecoin ecosystem is now unparalleled, and it has now overwhelmed all its competitors in the market.
Token Economics: Advantages, Disadvantages and Opportunities
A major downside of VC tokens is that if you hold the tokens long enough, you naturally become the exit liquidity for early investors, the team, and other token reward recipients. This alone has completely abandoned the most PMF projects seen in the crypto space this cycle in favor of pure meme coins.
Ethena is no different from the typical VC token. Since the peak, ENA has dropped ~80% due to high launch valuation and airdrop supply entering the market. In the past 6 months, the Q1 airdrop has been fully unlocked, with 750 million tokens hitting the market. These unlocks, combined with the reduction in leverage demand, have ultimately shattered the ENA narrative, which is why no one owns ENA now, and why I strongly suspect a re-rating would be quite severe.
So why should you consider this "evil" VC token now? The answer is simple - over the next 6 months, the amount of ENA entering the market will drop significantly, greatly alleviating sell pressure. Yesterday, the first batch of tokens was released, and out of the total 125 million new supply, the farmers only claimed 30 million, choosing to lock up the rest. Given that the farmers have been marginal sellers over the past few months, what will happen when they stop selling? The price has already found a natural bottom at $0.2 and is now forming higher highs and higher lows at $0.26.
From now until April 2025, the only additional inflation will come from the remaining ~300 million farmer reward tokens entering the market, but at $0.28, this amounts to only about $450,000 per day (less than 1% of daily trading volume). To put this in perspective, although TAO faces 4-5 million dollars of daily inflationary pressure, its price has still risen 250% in the past month. The point here is that when the conditions are right, inflationary unlocks are usually not important in the process of a token re-rating upwards. After April 2025, the team/VC will start unlocking tokens, so this gives us about 6 months to validate the above thesis.
How Big is the Dream?
Although ENA is the only major new product with clear PMF this cycle, it hasn't even cracked the top 100 on Coingecko. From a technical analysis perspective, ENA's high-frequency trading chart looks extremely clear. Considering the fundamental driving factors and the easing of inflationary pressure, I foresee ENA reclaiming the $1 level. Even so, ENA's market cap would still only be on par with the recent 1.5 billion dollar peak of POPCAT, not even reaching the heights of WIF.
Looking ahead, Ethena has a solid foundation to scale USDe to tens of billions or even hundreds of billions of dollars. As crypto stablecoins gain more market share for international cross-border payments, reaching a trillion dollars is not impossible. At that point, I would be surprised if ENA is not among the top 20 tokens, as it is the best product for the largest segment of the crypto market.
When we will reach this goal is uncertain, but Ethena is my bet on the next great dream for crypto this cycle.
As always, the above content should not be considered financial advice, please do your own research (DYOR).
I am of course also a long-term holder of this token, but if the subsequent data contradicts the above views, I may change my stance.
