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Hello readers,
We covered Ethena for the first time this past June. At the time, the stablecoin narrative was heating up, the market was starting to rotate to ETH, and the ENA token was trading at $0.27, 70% off its high.
We liked the setup heading into the end of the year. Our view was pretty simple. Ethena was the “fastest horse” in the crypto-native stablecoin sector in terms of pure play exposure. If the USDe supply doubled or tripled from its level at the time ($5.5b), we thought the ENA token could return to all-time highs of $1.20 (4.4x).
We were correct about USDe growth, but ENA peaked at just $0.80. We exited the trade in September/early October, booking a 108% gain. It wasn’t the “fat pitch” we thought it might be, but a solid trade nonetheless.
ENA is now on The Watch List. Today, we’ll provide an update on fundamentals, growth, and protocol development.
If you’d like to access our dashboard with real-time data included in this report, you can click the link in the data citation under each chart. Finally, if you’d like to be notified if/when we add ENA back to our portfolio, you can sign up for TDR Pro here.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.
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Let’s go.
Ethena’s USDe supply is currently $8.4 billion, down 43% from its October 5th high. However, supply is up 180% over the last year and still up 52% from when we covered the project in June.
Ethena’s entire economic engine is built around the growth and stability of USDe, its synthetic dollar. The ENA token captures value only if USDe adoption scales, because:
More USDe = more protocol revenue. Ethena makes $ by applying user deposits to delta-neutral strategies that earn yield for the user and the protocol.
Network effects compound with supply. USDe is competing to be the high-yield onchain dollar. Higher circulating supply improves liquidity, integrations, and utility — making USDe stickier while helping Ethena’s flywheel spin faster.
In the chart above, we can observe the correlation between USDe supply and the BTC price.
The two tend to move together. When BTC rises, funding rates tend to follow suit. When this extends to ETH, Ethena yields increase, and so does demand for USDe.
Now. Funding rates will drop and/or turn negative if BTC enters a bear market. If this happens, yields will drop. Demand for USDe will drop. And Ethena's revenues will drop.
Takeaway: Reflexive on the way up. Reflexive on the way down.
A quick breakdown of where the $8.4 billion USDe currently rests:
54.7% is in staking (earning the yield from funding rates)
16.2% is on centralized exchanges
12.2% is in the Ethena bridge
5.3% is in Pendle (a yield trading protocol)
3.1% is in DeFi lending (Aave, Fluid, Morpho)
0.9% is in Ethereal (yield vault built on Ethena)
0.5% is on DEXs
0.2% is in the Ethena LP staking contract (used to incentivize liquidity provisioning for USDe across DEXs)
6.8% is unknown
The biggest change since June? 12.3% of the supply was in Ethereal back then. Ethereal is a yield vault/structured product platform built on top of Ethena. Over the summer, they were running incentive programs, boosting USDe yield. 0.9% of the supply is now in Ethereal, while a lot of the supply appears to have moved its way back to CEXs.
Pendle has now become the dominant USDe yield marketplace.
Network effects. The utility of USDe (and therefore its demand) increases as more integrations are added across DeFi.
USDe is not a “payment stablecoin.” It’s a yield-bearing stablecoin. Unlike cash, it’s more like a money market account that you don’t want to spend. Therefore, we want to see a high stake rate — indicating that users are comfortable depositing into Ethena’s contracts to earn the yield.
The current yield on staked USDe is 5%. Over the last year, it averaged out to 8%, peaking at 26.4% (annualized) on 11/29/24.
The yield is what drives demand for USDe. Given the additional risk taken to capture this yield, it needs to remain significantly above Treasury yields for demand to persist. This could be challenging in a bear market as the USDe yield comes primarily from
Since June, 4.65% of all Ethereum DEX volume has involved USDe as a trading pair. That’s up from 3.23% in the first half of the year.
Liquidity. Utility. Integrations. Ethena seeks to grow network effects across all of Ethereum DeFi. To do so, it needs to bootstrap liquidity across multiple DEXs and lending protocols.
We’re seeing progress on this dimension over the last 6 months.
Data: Glassnode, The DeFi Report
Open Interest = the size of the perps market for ETH. This is where the yield on USDe comes from.
High open interest indicates that perp markets are deep, active, highly leveraged, and attracting directional speculation.
When ETH rises in price, Perp markets get leveraged long. They pay funding rates (to shorts) to keep their positions open. This is how Ethena makes money and pays the yield to USDe holders.
When ETH drops in price, longs step out of the market. Open interest drops. And the amount of $ paid to shorts (and Ethena) drops. This is what we see today, with ETH futures open interest down 47% from its peak on August 18.
Takeaway: A long, drawn-out bear market could be quite painful for ENA and USDe holders. Particularly if funding rates turn negative for an extended period.
Data: The DeFi Report, Token Terminal
The Ethena protocol has generated a total of $456m of revenue over the last year.
Of that, $307m was paid out to USDe holders. The remaining $149m (32.6%) went to the protocol to fund operations.
Ethena is among the highest-revenue-generating protocols in crypto. It’s tied for #11 (with Ethereum L1) in terms of total fee generation over the last 30 days. This allows them to share value with their USDe holders while investing in scaling and new innovations.
Total Supply: 15 billion ENA
Circulating Supply: 7.42 billion (49.4%)
Team: the team tokens unlock on a 1-year 25% cliff (March of this year), with the remaining tokens unlocking on a three-year linear schedule, which ends in March of ‘28
Investors: the investor tokens unlock on the same 1-year 25% cliff, with the remaining tokens unlocking on a three-year linear schedule that ends in March of ‘28
Currently, there are 172 million ENA unlocks per month. This will continue through March of ‘28. At the current ENA price ($0.30), this equates to $51.6m in unlocks per month.
*Please note that Ethena’s governance docs do not explicitly state the % of tokens allocated to investors. 25% is an estimate that we cross-checked with Tokenomist and Messari.
The chart below shows Ethena’s market cap vs ENA price. We can see the impact of the unlocks here as the market cap rose to all-time highs in late September, but the ENA price struggled to get above $0.80 (33% off its high). Why? Unlocks.
Takeaway: Ethena will continue to unlock over $50m/month of team and investor tokens through March of ‘28. This can be particularly challenging in a bear market, when inflows typically decline significantly.
Fee Switch: thresholds to turn it on have been met, but the technical implementation has not yet gone live. It’s possible the team may backtrack on this if revenues drop into a bear market.
Converge Chain L2: Converge is a planned EVM-compatible L2 built by Ethena and Securitize. Its goal is to bridge TradFi & DeFi via tokenized RWAs and stablecoins. It will support both permissionless DeFi and permissioned DeFi use cases. The L2 is built on Arbitrum and leverages Celestia for data availability. Mainnet has yet to launch. The latest update indicated “later in ‘25.”
Ethereal L3/appchain for spot & perp trading: As we understand it, Ethereal is an ecosystem project aiming to bootstrap USDe as the base asset and collateral for spot & perp trading on the DEX. The appchain is currently running a points program and has yet to launch.
USDtb. This is a separate yield-bearing stablecoin that holders of USDe can access via staking. The yield for this token is paid from offchain, tokenized t-bills (from BlackRock’s BUIDL money market fund). There are currently $1.8b of USDtb holdings. One thing we’re keeping an eye on is whether this product will grow in a bear market to offset outflows of USDe driven by lower funding rates.
There was a lot of chatter about the “Ethena de-peg” during the market mayhem of 10/10. However, it doesn’t look like that’s what actually happened. What actually appears to have occurred was a depeg that was isolated to Binance (due to technical implementation on their end).
This was a risk we highlighted in our June memo. It’s one of the reasons we had no interest in holding the token in a downturn/bear market. We think it needs to be battle-tested. It passed its first big test.
The other big risk we highlighted in the June memo was the $50m/month unlocks from the team and investors.
For these two reasons, we view ENA as a “risk-on” play.
With that said, Ethena is winning the crypto-native yield-bearing stablecoin race today. We like the team. The product. And the growth story.
Given the unlocks and reflexivity, we think there may be opportunities to buy the token at deep value in the coming months/quarters.
If you’d like to be notified if/when we add ENA back to our portfolio, and can sign up for TDR Pro.
For a full breakdown of Ethena, including the team, investors, product, business model, addressable market, competition, risks, and more, you can access the investment memo here.
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And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.