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Exploring EthenaLabs ($USDe): Can it bring the next billion dollars of TVL into the DeFi space?

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Why are stablecoins important?

Original Title: Stablecoin Evolution: USDe's Impact on Decentralized Finance

Original Source: Greythorn Asset Management

· Project Name: EthenaLabs

· Network: Ethereum L1

· Current TVL (Total Value Locked): $410 million USD

· Project Type: CDP (Collateralized Debt Position)

· Code name: $USDe & $ENA

· Cryptocurrency ranking: #NA

· Market Cap: NA

· Fully Diluted Valuation (FDV) after complete dilution: NA

· Circulating Supply: NA

· Total supply: NA

Introduction

With the collapse of Terra and its related UST and Anchor protocols in 2022, interest in decentralized stablecoins has plummeted. Of course, with the continued development of web3, sectors are constantly rotating and evolving. Now, the Greythorn team sees projects like Prisma, Liquity, and Lybra at the forefront of innovation in the LSD/CDP space. Meanwhile, Maker and Curve remain unchanged in terms of total locked value (TVL).

Source: Defillama

Many experts are questioning whether EthenaLabs' new project USDe can maintain its ~27% annual percentage yield (APY) while avoiding situations similar to Anchor that could potentially harm investors.

EthenaLabs announced its financing on July 12, 2023, reigniting the passion for Defi by creating a digital currency pegged to the US dollar using LST (stETH). Of course, this raises the question: will it fully utilize Ethereum's Layer 1 and Layer 2, or will it follow in the footsteps of LUNA and become the next major failure in the cryptocurrency market?

Why are USDe and stablecoins important?

Stablecoins have become a key player in the decentralized currency market, significantly influencing market dynamics. They are an important component of spot and futures market trading, and stablecoins play a crucial role in supporting trading and increasing market stability in both centralized and decentralized platforms, especially in the context of the constantly fluctuating cryptocurrency market.

In the past two years, the stablecoin industry has achieved significant growth, with on-chain transaction volume exceeding $9.4 trillion this year. Two of the top five assets in DeFi and more than 40% of the total locked value (TVL) are stablecoins. They dominate transactions, with over 90% of order book trades and over 79% of on-chain transactions involving stablecoins, according to data.

Source: X: Route2FI

AllianceBernstein, a global leading asset management company with $725 billion assets under management (AUM), predicts that the stablecoin market could reach $2.8 trillion by 2028. This forecast indicates a huge growth opportunity from the current market value of $138 billion (previously reaching a peak of $187 billion).

The increasing acceptance of stablecoins and their consistent performance in both centralized and decentralized environments demonstrate their indispensable role in the cryptocurrency ecosystem. Optimistically, their potential for growth in this space is as high as 2000%, presenting significant opportunities for investors and market participants to interact with projects like EthenaLabs' USDe.

Specifically, USDe aims to meet the growing demand by providing an anti-censorship, scalable, and stable market option.

Project Overview

EthenaLabs was inspired by Arthur Hayes' "Dust to Crust" article and is committed to creating a stablecoin supported by derivatives to solve the major problem of cryptocurrency's reliance on traditional banks. Their goal is to provide a decentralized, permissionless savings product for a wide audience. EthenaLabs' synthetic dollar, USDe, aims to be the first crypto-native, censorship-resistant, scalable, and stable financial solution achieved through Delta hedging of collateralized Ethereum.

EthenaLabs plans to introduce a product they call "Internet Bond" along with USDe. According to EthenaLabs Gitbook, this will be a crypto-native, income-generating, USD-denominated savings tool based on collateralized Ethereum returns and utilizing funding and basis differential in perpetual contracts and futures markets.

EthenaLabs stands out with its unique mission and innovative approach. Unlike other CDP projects such as Maker's DAI, Liquity's LUSD, and Curve's crvUSD, EthenaLabs' USDe generates its USD value and returns through two main strategies:

Utilize stETH and its inherent yield.

Transparent Marketing: Unlike Anchor's "risk-free" returns, USDe's marketing directly explains the risks and returns. Its profits come from perpetual contracts (perps) and collateralized Ethereum (stETH), which are clearly communicated, setting realistic expectations.

Real Yield: sUSDe does not promise unsustainable high deposit rates. Instead, it provides real yield from its underlying assets, avoiding the trap of incentivizing borrowers with rates that cannot be supported by asset yields.

避免自我抵押: Unlike some models that use their own tokens as collateral, sUSDe relies on stETH. This shift from the project's own token to a more stable asset like stETH significantly changes the risk dynamics. The focus shifts from speculative risks associated with the project's token to more manageable liquidity risks with ETH and stETH, as well as other risks mentioned above.

Comparing the collapse of USDe and UST is misleading because they have fundamental differences in risk structure and operating models. USDe investors should focus on understanding the specifics of perpetual funding, centralized exchange liquidity, and custody risks, rather than the unsustainable high-yield strategies seen in the UST model.

Overall, compared to Terra's UST, USDe presents a more thoughtful and potentially safer option in terms of risk mitigation and product structure. By leveraging local yields and effectively managing risks from derivative sources, USDe stands out not only for its earning opportunities, but also for its strategic design and risk management practices.

Outstanding Team and Support

The Ethena team, led by @leptokurtic_, has successfully completed three rounds of financing, attracting significant participation from centralized exchanges, market makers, DeFi innovators, and traditional financial institutions. This broad support emphasizes the project's credibility and potential impact on the ecosystem.

Under the urgent deadline, the team demonstrated excellent planning and coordination abilities to ensure the protocol was ready for mainnet release. They prioritized risk management and security, conducting thorough audits before the release.

Source: ICO Analytics: Ethena

The success of the Shard airdrop campaign has demonstrated the market's interest in decentralized stablecoins. Since early December 2023, the total locked value (TVL) has increased by 135 times, reaching over $410 million, making for an impressive start to the campaign.

Source: @noxiousq Dune Analytics

This momentum indicates that products with strong demand, such as USDe, have not only attracted a large amount of TVL, but also the attention of investors who support its vision. As USDe moves forward, it aims to introduce the next billion dollars of TVL to the DeFi field, potentially opening up new opportunities similar to those seen during the Luna cycle. It makes people start to think: Does this mark the beginning of another transformative phase in decentralized finance?