Ethena’s TVL Surges to $2 Billion, Will Success Outweigh Sustainability Concerns?

Ethena Protocol (ENA), the project behind the synthetic dollar stablecoin USDe, has catapulted its total value locked (TVL) beyond the $2 billion mark.

This significant growth spurt comes amidst a wave of skepticism from seasoned industry experts, echoing concerns reminiscent of the Terra (LUNA) debacle.

Experts Voice Their Skepticism on Ethena’s USDe

Based on the data from DefiLlama, on April 1, Ethena’s TVL stood at $1.54 billion. In just four days, it has surged past the $2 billion mark, marking a growth of about 30%. This significant increase highlights the growing investor interest in what Ethena offers.

The protocol’s lucrative 27% annual percentage yield (APY) and its recently launched ENA token airdrop undoubtedly attract investors. Ethena’s airdrop on April 2 rewarded eligible users with a generous 750 million tokens.

Ethena’s TVL. Source: DefiLlama

This news follows another attention-grabbing decision from MakerDAO, which oversees the DAI stablecoin. MakerDAO is exploring a sizeable 600 million DAI allocation toward USDe through Morpho Labs.

Ethena’s surge is underpinned by substantial backing from prominent investors like Delphi Digital, Wintermute, and Galaxy Digital. This adds a layer of perceived credibility to the platform.

Yet, Ethena’s breakneck growth has come with warnings. DeFi luminary Andre Cronje voiced concerns about USDe potentially facing a collapse mirroring the TerraUSD (UST) debacle. Cronje’s worries center on Ethena’s use of perpetual contracts and the reliance on yield-based collateral.

CryptoQuant founder Ki Young Ju echoed Cronje’s warning, focusing on Ethena’s announced plans to integrate Bitcoin (BTC) as a USDe backing asset. He questions Ethena’s ability to maintain a delta-neutral BTC strategy during bear markets.

“I’m just concerned about a repeat of LUNA’s scenario: selling BTC to stabilize USDe’s peg if their algorithm fails during bear markets,” Ki Young Ju emphasized.

It’s worth noting that Anchor Protocol offered around 20% APY on UST. It means USDe’s APY is even higher than UST’s.

Despite these critical voices, USDe has become the fifth-largest stablecoin by capitalization. ENA, Ethena’s native token, has seen a remarkable price increase from $0.62 to $1.25 in less than two days following the successful airdrop. However, at the time of writing, ENA is trading at $0.99.

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