Top Traders: Why Ethena Will Be a Trillion-Dollar Crypto Narrative?

Original Title: Ethena: The Trillion Dollar Crypto Opportunity

Author: Eugene Ng Ah Sio, Crypto Trader, KOL;

Compiled by: 0xjs@Jinse Finance

TLDR:

Ethena is the fastest-growing DeFi product in history. In just a few months, its yield-bearing stablecoin has expanded to $3 billion, and since its inception, no other stablecoin has matched the growth rate of USDe. The first chapter of the Ethena story focuses on creating a secure and superior stablecoin. After successfully withstanding extreme market volatility, it now aims to chase the biggest prize in the cryptocurrency space—the $160 billion feast of Tether.

It is here that Ethena begins its transformation from a "DeFi-native stablecoin" to a fiat stablecoin competitor with a superior value proposition and significantly improved distribution channels. The launch of USTb, the recent participation of Blackrock in treasury products, and declining interest rates present opportunities for Ethena, positioning it favorably to make USDe the dominant stablecoin in the cryptocurrency space.

Due to market inefficiencies, you now have the chance to buy the most powerful new competitor in the largest vertical in the cryptocurrency space, valued at only 1/4 of WIF's market cap.

Market Status

This cycle has been dominated by memecoins. The market has recognized the game of market manipulation in purchasing relatively unproven VC project tokens, which are valued absurdly high, often several times above the cost basis of most VCs. In contrast, we have fully embraced a more liberated memecoins game. Memecoins have consistently outperformed other altcoins, leading some to believe in "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 common, even drawing attention to historical peaks of memecoins.

People's attention to memes has reached a historical peak Source: Kaito

As the market becomes intoxicated with memecoins, it slowly forgets an eternal lesson taught by all markets:

The most powerful speculation is always based on at least some facts.

The rise of memecoins is primarily a crypto-native, retail-driven market phenomenon. What these retail participants forget is that over time, the most liquid currencies are always built on parabolic growth based on fundamentals. This is because only with a fundamental anchor will the Schelling points of all crypto-native capital pools (retail, hedge funds, proprietary funds, and long-only liquidity funds) emerge. This is the story of SOL in this cycle; those who focused on developer participation at the beginning of 2023 were able to form a fundamental argument for the growth of the Solana ecosystem, subsequently enjoying nearly a 10x revaluation within a year.

You might also remember the 500x liquidity of Axie Infinity and the millions of players they attracted during the peak of excitement. Another very familiar reference is Luna's $40 billion UST in global circulation, and the 1000x returns you could achieve within 18 months (assuming you bought LUNA at the low and correctly hedged the spiral risk to exit in time).

While financial nihilism is the overarching trend dominating this cycle, one might argue that it is precisely the lack of strong PMF in current venture capital projects that has led to this erroneous consensus view.

However, it only takes one project to reignite the dreams of the masses.

I believe Ethena is the most qualified candidate for this role in this cycle.

Fundamentals

When considering stablecoins, there are really only two important things.

1. Value Proposition—Why would you hold this?

Ethena's product and value proposition are very straightforward. Deposit $1, receive a delta-neutral position between staked ETH and ETH short positions, and earn yield. Assuming financing rates normalize, sUSDe offers the highest sustainable yield (10-13% APY) among all stablecoins today. This substantive value proposition has made Ethena the fastest-growing stablecoin in history, reaching a peak TVL of $3.7 billion within 7 months and stabilizing at $2.5 billion after financing rates declined.

In terms of yield, USDe far outperforms all other DeFi products.

At first glance, it is clear that sUSDe is the undisputed king of yield among all cryptocurrencies. Why would you hold Tether today and forgo all potential yields of the dollar? Most likely because it is the easiest to obtain and has the highest liquidity. This brings us to…

2. Distribution—How easy is it to obtain and use it as a form of currency?

When launching any new stablecoin, distribution channels are the most critical factor determining adoption. USDT is the number one stablecoin today because it is the base currency for any market on every centralized exchange. This alone is a massive moat, and new stablecoins take years to start capturing market share.

However, USDe has successfully accomplished something very special. With the support of Bybit, it has opened up to users on the second-largest CEX, embedding automatic yield features within the platform. This allows users to obtain higher-quality stablecoin collateral without increasing friction. So far, no other decentralized stablecoin has been integrated into any major CEX, highlighting how difficult this feat is.

Source: Artemis

Currently, the total amount of stablecoins on centralized exchanges is approximately $38.6 billion, which is 15 times the current supply of USDe. If even 20% of those stablecoins believe that earning 5-10% on USDe is better, this would mean that the service market for USDe would grow nearly 4 times. Now imagine what would happen when all major centralized exchanges adopt USDe as collateral.

Catalyst 1: Structural Decline in Interest Rates

Since the establishment of Ethena, the relative yield premium of sUSDe has averaged 5-8% above the federal funds rate. This structural advantage has attracted billions of dollars in yield-seeking capital into Ethena within the first 9 months post-launch.

Recent Fed Dot Plot (Sep 2024)

Powell's 50 basis point cut to the federal funds rate in September marks the beginning of a sustained decline in global risk-free rates. The dot plot currently estimates a steady state federal funds rate of 3 - 3.5%, indicating that rates will decline by about 2% over the next 24 months. However, this is unrelated to Ethena's yield source; in fact, it could be argued that it has a positive indirect trickle-down effect on financing rates (market up -> risk return -> increased leverage demand -> financing rates rise).

When combined, this potent mixture will cause the yield spread to soar, which is the true value proposition of Ethena's product.

The supply of USDe is extremely sensitive to the yield spread associated with U.S. Treasuries.

Referring to the above two charts, it is evident that the demand for USDe is highly sensitive to the yield premium of U.S. Treasuries. In the first 6 months of rising yield premiums, the supply of USDe surged. As the premium declined, the demand for USDe naturally decreased. With this historical data, I believe the return of the yield premium will lead to accelerated growth for USDe once again. Importantly, this tailwind is both easy to understand and attractive to most market participants.

Over time, I expect this to significantly increase Ethena's market share, just as Luna and UST dominated when DeFi yields began to decline in 2021 and UST's 20% collateral in Anchor became increasingly popular.

Catalyst 2: USTb

USTb was launched two weeks ago, and in my view, it is absolutely a game-changing product that can enhance the adoption of USDe.

Key Points of USTb:

• A stablecoin fully backed by Blackrock and Securitize
• Functions identically to other stablecoins, earning yield from U.S. Treasuries without increasing custodian/counterparty risk
• Can become a subset of USDe, allowing sUSDe holders to earn treasury yields when Tradfi yields > cryptocurrency yields

The market has underestimated this because now, apart from USDe, there is almost no reason to hold any other cryptocurrency stablecoin, provided you can trust that exchanges like Binance won't go bankrupt (even if they do, USDe won't drop to zero because it is fully backed by BTC and stETH). In the worst case, you would earn yields similar to competitors, if not better, based on the market's risk appetite.

By integrating USTb on the backend, the yield volatility of sUSDe is now significantly reduced, eliminating the biggest concern that Ethena would not achieve sustainable yields in a bear market. The reduction in yield volatility also increases the chances of future CEX integrations.

With these two catalysts, Ethena possesses a comprehensive premium stablecoin that currently dominates all other competitors.

Token Economics: The Good, The Bad, and The Opportunity

One of the downsides of VC tokens is that if you hold the tokens long enough, you naturally become the exit liquidity for early investors, teams, and other stakeholders who received token rewards. Just based on this, the entire market has completely abandoned the most product-market fit cryptocurrency of this cycle in favor of pure memecoins.

Ethena is no different from the usual VC tokens. Since its peak, ENA has dropped about 80% in price due to rising issuance valuations and the influx of airdrop supply into the market. Over the past 6 months, the first season of airdrops has fully unlocked, with 750 million tokens entering the market. These unlocks, combined with declining demand for leverage, ultimately crushed the narrative for ENA, which is why no one owns this currency today, and why I strongly suspect that re-rating will experience extreme volatility.

So why should you engage with this evil VC token now? The answer is simple—over the next 6 months, the number of ENA tokens entering the market will drastically decrease, significantly suppressing selling pressure. Yesterday, the first batch of tokens was issued, and out of a total of $125 million in new ENA supply, airdrop participants only claimed $30 million, choosing to lock up the remaining tokens. Given that airdrop participants have been the primary marginal sellers in recent months, what will happen when they stop selling? The price has already found a natural bottom at $0.20 and is now forming a historical bottom at $0.26.

From now until April 2025, the only additional inflation will be the remaining approximately $300 million in airdrop rewards entering the market, which at a price of $0.28 translates to about $450,000 unlocking daily (less than 1% of daily trading volume). From this perspective, despite TAO inflation pressures of $4-5 million, it has still risen 250% over the past month. The key point here is that when the stars align, inflation unlocks rarely impact the re-rating of tokens. After April 2025, the team/venture capital firms will begin to unlock, giving us about 6 months to play out the above argument.

How Big Are the Dreams?

Despite ENA being the only major new product in this cycle with a clear PMF, ENA has not even entered the top 100 on Coingecko. From a technical analysis perspective, ENA's HTF chart looks very clean. Coupled with fundamental drivers + reduced inflation pressure, I can easily foresee ENA returning to the $1 level. This wouldn't even bring ENA's market cap to the equivalent of WIF's market cap, only reaching the recent high of $1.5 billion in circulating supply of POPCAT.

Looking further, Ethena has the foundation to expand USDe to tens of billions, then hundreds of billions. Ultimately, as crypto stablecoins gain further market share due to international cross-border payments, a trillion dollars is not out of the question. At that point, if ENA is not ranked among the top 20 tokens, given that it is the best product chasing the largest market in cryptocurrency, it would be surprising.

When we will get there is uncertain, but I believe Ethena is the next big dream in cryptocurrency for this cycle.