Ethena Labs continues to be carefully watched for potential contagion dangers. The bull market is now serving to the mission, however the impact of USDe could unfold to further protocols.
Ethena Labs is gaining assist from the Ethereum (ETH) bull market. Nevertheless, the mission continues to be a supply of danger, tied to the newly issued 3.4B of USDe. The mission now faces each exterior and inner components that might sway the stability and have an effect on the utilization of USDe.
Over the previous weeks, the acceptance of USDe into new protocols was gaining pace. The Pendle ecosystem is now absorbing extra USDe, in addition to apps like PolynomialFi and KintoXYZ.
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The USDe stablecoin reached peak provide at 3.6B tokens, and had a slight outflow in July. On the similar time, bullish ETH expectations are making the bottom commerce safer for Ethena.
The chance from Ethena comes from the almost 1.7B staked USDe, or SUSDe, which exhibits a slide in accessible liquidity. To this point, SUSDe has not misplaced its greenback peg, however the ratio between liquidity and staked tokens is close to its low level at 0.42%. The accessible liquidity for SUSDe began falling in Could.
Most SUSDe continues to be locked with Pendle and Morpho, whereas exposing even prime protocols like DAI. All SUSDe holders are incentivized by the Sats Factors system, in trade for staking stablecoins or ENA. The expectation of the second Ethena airdrop is what holds the SUSDe nonetheless staked, with no signal of sliding beneath $1. SUSDe is even buying and selling at a premium of $1.09.
New @pendle_fi swimming pools with elevated caps and the very best USDe multipliers thus far for October maturities
The PT sUSDe pool shall be eligible collateral inside the @sparkdotfi and @MorphoLabs modern new market the place customers can borrow in opposition to fastened price collateral subsequent week https://t.co/vEF73EHjs5
— Ethena Labs (@ethena_labs) July 18, 2024
Ethena exhibits low insurance coverage fund stability
Ethena Labs claims it has an insurance coverage fund stability to assist the value of USDe and SUSDe in case of liquidity issues. The primary mechanism to guard the stablecoin is to increase the cooldown interval for un-staking. However the insurance coverage fund can be seen as a instrument to guard worth.
The fund was valued at 44M on the finish of 2023, however the newest on-chain knowledge confirmed Ethena held 18.4M USDT in its reserve tackle.
Primarily based on market circumstances and the habits of traders, Ethena’s fund could final between 3 and 90 days. Nevertheless, the market contagion and panic from de-pegging or different destructive eventualities could shorten the anticipated interval. Analysts have examined the fund’s potential to keep away from contagion, and put the fascinating reserves at greater than $115M for a $3.5B in stablecoins.
On the optimistic facet, Ethena has added Bitcoin (BTC) as its supply of funding charges, to keep away from the volatility of the Ethereum (ETH) market. For now, Ethena’s commerce and payment manufacturing are nonetheless benefiting from the bullish ETH buying and selling. The market has not seen important durations of destructive funding, sufficient to deplete all the reserve.
USDe additionally varies in its accessible buying and selling pairs. In July, the buying and selling profile for USDe shifted, including extra liquidity from FRAX. Buying and selling is targeting Uniswap V3 and Curve Finance, in opposition to stablecoins USDT, USDC, DAI, sDAI, mkUSD, FRAX, and crvUSD. These pairs could also be affected by worth fluctuations.
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USDe is now beneath the $1 peg, buying and selling at $0.93. This implies all SUSDe holders will lose in the event that they attempt to liquidate their holdings. As for SUSDe, its premium worth can’t be realized instantly. But having a USDe low cost is healthier for the protocol. On the finish of June, Ethena had the reverse scenario, with a premium for USDe, prompting holders to arbitrage the distinction. Three weeks later, the market has returned and there’s no danger of a run from SUSDe into USDe.
The opposite danger for Ethena is the sliding worth of the native ENA token. The asset is now all the way down to $0.46, near the decrease vary for the previous 12 months. Since Ethena’s liquidity depends on incentives, a low ENA token worth could decelerate the airdrop mining for the mission. ENA nonetheless managed to bounce from a latest low of $0.34.
The most important attractor for utilizing USDe and SUSDe are the upper yields in comparison with different protocols. The yields are permitting some DeFi apps and customers to get uncovered to the chance of Ethena, contemplating the present market circumstances as favorable.
Cryptopolitan reporting by Hristina Vasileva
