USDe Surges 75% to $9.3B, Challenges USDC for Stablecoin Rank

Ethena’s synthetic stablecoin, USDe, has experienced a meteoric rise in market capitalization, surging from approximately $5.33 billion on July 17 to over $9.3 billion by August 4. This nearly 75% increase has propelled USDe into the third-largest stablecoin by market cap, trailing only Tether’s (USDT) $164 billion and Circle’s USDC, which holds around $64 billion [1].

The rapid growth of USDe is attributed to a combination of factors, including positive funding rates in perpetual futures markets and heightened attention on Ethena’s ENA token buyback program. In less than 30 days, more than $3.1 billion in new USDe was minted, signaling strong demand and participation from crypto-native investors. The stablecoin’s synthetic structure, underpinned by a delta-neutral strategy combining long positions in digital assets with perpetual short positions, has proven particularly effective in bullish and volatile markets, where funding spreads favor short sellers [1].

Ethena’s founder, Guy Young, has emphasized the distinct risk profile of USDe compared to fiat-backed stablecoins. Unlike USDT and USDC, which are supported by traditional banking instruments such as TBill equivalents, USDe operates entirely on-chain. This model allows stakers to convert USDe into sUSDe and earn yield from the basis trade, a mechanism that has driven much of the recent growth [1].

However, the sustainability of USDe’s yield remains uncertain. Annualized funding rewards, which previously exceeded 60%, have fallen below 5% as capital inflows have increased, compressing returns. Ethena itself acknowledges “funding risk” as a primary concern, noting the strategy is highly sensitive to shifts in market structure and counterparty stability on major exchanges [1].

The trajectory of USDe bears some resemblance to USDC’s growth in early 2021, when it crossed the $10 billion threshold. At its current valuation of nearly $9.25 billion, USDe is positioned at a similar scale. If it maintains an 8.4% monthly growth rate while USDC remains stagnant, USDe could surpass USDC in market cap within two years [1].

Notably, USDe’s rise has had indirect effects on the broader stablecoin ecosystem. For every unit of shorts Ethena adds to the market, a corresponding unit of Tether demand is created. This dynamic suggests that USDe’s expansion could inadvertently strengthen existing stablecoins, despite its disruptive ambitions [1].

While USDe’s growth represents a significant milestone for non-fiat-backed stablecoins, it also raises comparisons to the collapse of algorithmic stablecoin Luna’s UST, which once reached a market cap of over $60 billion before losing its peg to the U.S. dollar. The current market interplay between USDe and incumbents highlights both the potential and the inherent risks of crypto-native yield structures, particularly in the face of compressed funding rates, custodial risks, and regulatory uncertainty [1].

For now, USDe remains a formidable contender in the stablecoin space, its future closely tied to the volatile mechanics it leverages. The coming months will be critical in determining whether this rapid ascent can be sustained or if it mirrors the brief brilliance of past experimental stablecoins.

Source: [1] Ethena’s $9.5B USDe could now challenge USDC’s number 2 spot by 2027 (https://cryptoslate.com/ethenas-9-5b-usde-could-now-challenge-usdcs-number-2-spot-by-2027/)