Ethena’s $9.5B USDe could now challenge USDC’s number 2 spot by 2027

USDe’s market cap surged from approximately $5.33 billion on July 17 to over $9.3 billion by August 4, marking a nearly 75% increase and propelling it into the number three slot among all stablecoins, behind only USDT and USDC.

The sudden rise has positioned Ethena’s synthetic dollar among top-tier stablecoins while also raising questions about whether a delta-neutral, crypto-native asset can sustain such momentum in a market historically dominated by fiat-backed coins.

The jump in market cap reflects more than just investor enthusiasm. Over the span of less than 30 days, more than $3.1 billion in new USDe was minted. This influx correlates with positive funding rates in the perpetual futures markets and a sharp uptick in attention around Ethena’s ENA token buyback program.

Rapid ascent of USDe

The speed of USDe’s growth stands out in the stablecoin landscape, drawing parallels to USDC’s ascent, which crossed the $10 billion threshold in March 2021. At ~$9.25 billion, USDe is now at a similar scale to that milestone.

USDC market cap growth (Source: CoinMarketCap)

Unlike incumbents USDT and USDC, which are backed by traditional banking instruments like T-bills, USDe operates fully on-chain via a synthetic structure. It is underpinned by a delta-neutral strategy that combines long spot positions in digital assets such as BTC, ETH, or SOL with offsetting perpetual short positions.

The resulting basis or funding yield is passed on to stakers who convert USDe into sUSDe. Ethena has pitched this model as offering attractive returns and sidestepping traditional financial intermediaries. As the project’s founder, Guy Young, has noted, USDe aims to offer a risk profile distinct from fiat-tethered stablecoins.

The basis trade mechanism that powers USDe’s yield has proven lucrative in bullish or volatile market conditions, where perpetual funding spreads widen in favor of short sellers. This dynamic was a key driver of USDe’s July growth.

However, the sustainability of this yield is less clear. Funding rewards that once exceeded 60% annualized have fallen below 5% as more capital has crowded into the trade.

Ethena’s own documentation identifies “funding risk” as a primary concern, flagging that the strategy is highly sensitive to shifts in market structure, especially if funding flips negative or counterparty stability on major exchanges is compromised.

USDe leaves established stablecoins in the dust

Market data reinforces the scale of USDe’s recent ascent. Per CoinMarketCap and DefiLlama, USDe now ranks third among stablecoins by market capitalization, trailing only USDT’s ~$164 billion and USDC’s ~$64 billion.

Notably, this growth has also led to USDe surpassing rebranded competitors such as USDS (formerly DAI), illustrating the reshuffling within decentralized stablecoin rankings.

While still $50 billion behind USDC, USDe’s current size is equivalent to half of USDC’s market cap during its November 2023 dip to $24 billion.

If USDe were to maintain an 8.4% monthly growth rate, assuming USDC remains flat, it could surpass USDC within two years.

The model’s reflexivity has also drawn analytical interest. Young outlined how the growth of USDe inadvertently drives demand for USDT: “For every unit of shorts Ethena adds to the market, a unit of Tether demand is created… a $1 increase in USDe leads to a ~$0.70 increase in USDT when USDe is backed purely by perpetual positions.” This market interplay suggests that USDe’s growth may indirectly strengthen the very incumbents it seeks to disrupt, underlining the complexity of its systemic interactions.

USDe’s recent trajectory demonstrates the potential for a non-fiat-backed stablecoin to achieve meaningful scale. Its rapid ascent highlights both the power and the limitations of crypto-native yield structures.

Yet, it also brings back memories of algorithmic stablecoin Luna UST, which rocketed to over $60 billion in market cap before losing its peg and effectively crashing to zero.

While short-term momentum has propelled it to the forefront, whether it can maintain velocity amid compressed funding, custodial risk exposure, and regulatory scrutiny remains uncertain.

For now, Ethena’s synthetic dollar sits as a contender among giants, its future tied closely to the volatile mechanics it leverages.

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