The protocol's rejuvenation is driven by elevated perpetual funding rates, with more catalysts ahead for growth.

Nov 19, 2024, 7:27 p.m.

• Ethena's USDe yield-bearing token grew by $1 billion in a month to $3.44 billion as perpetual funding rates rose amid the crypto rally.
• The token now offers a 29% annualized yield, rebounding from a period of below the U.S. dollar risk-free rate as crypto markets corrected.
• DeFi lenders and exchanges listing USDe as collateral assets and plans to distribute protocol revenues to governance token holders could further bolster growth.

As crypto markets rocketed higher since Trump's election victory, Ethena's yield-bearing token is back in vogue with investors.

The project's USDe token attracted around $1 billion in new capital over the past month, climbing to a market capitalization of $3.44 billion, according to DefiLlama data. Now, it's only 5% below its record value of $3.6 billion in July.

Ethena faced headwinds as crypto markets cooled off from their March peak. USDe is marketed as a "synthetic dollar" with its price anchored at $1. It uses bitcoin (BTC) and ether (ETH) as backing assets, pairing them with an equal value of short perpetual futures positions on multiple exchanges. The strategy generates revenue on its backing derivative assets when the perpetual funding rates are positive and passes on some of the income as yield to investors.

Perpetual funding rates turned negative in August and September, rendering Ethena's strategy unfavorable to investors with yields lower than the risk-free rate for the U.S. dollar. Investors withdrew $1.2 billion from the protocol between July and October.

Now, as crypto markets turn red-hot, with BTC breaking multiple all-time records, Ethena offers a 29% annualized yield to holders who stake their tokens, according to the project's website.

More catalysts for Ethena growth

There are more catalysts ahead that could fuel further growth.

Decentralized lending behemoth Aave added staked USDe token among its available collateral assets, allowing users to borrow against the tokens while earning a yield.

"Expect that the Aave integration [...] will be a multi-billion supply sink for USDe within the next month, and two new CEX collateral listings are dropping within the next week," Guy Young, Ethena's co-founder and CEO, said in an X post on Friday.

Ethena also plans to start sharing protocol revenues with governance token (ENA) holders, after the project's risk committee approved a governance initiative last week. The plan was proposed by crypto trading firm Wintermute on Nov. 6, following Donald Trump's election victory. Industry players anticipate more appeasing regulations for decentralized finance (DeFi) protocols under a Trump presidency, as the president-elect also backs one.