Ethena Protocol (ENA), the project responsible for the synthetic dollar stablecoin USDe, has achieved a milestone by surpassing $2 billion in total value locked (TVL). However, as the project gains momentum, concerns about its long-term sustainability have been raised.
DefiLlama data shows that Ethena’s TVL was at $1.54 billion on April 1 and has since grown by approximately 30% to cross the $2 billion mark in just four days. This significant increase reflects the growing interest of investors in Ethena and its offerings.
One of the main attractions for investors is the protocol’s attractive 27% annual percentage yield (APY), coupled with the recent ENA token airdrop that rewarded eligible users with 750 million tokens.
Ethena’s surge also comes in the wake of MakerDAO’s decision to explore a substantial 600 million DAI allocation towards USDe through Morpho Labs. The considerable backing from prominent investors like Delphi Digital, Wintermute, and Galaxy Digital adds a level of credibility to the platform.
However, there have been warnings about Ethena’s rapid growth. Andre Cronje, a respected figure in the decentralized finance (DeFi) space, has expressed concerns about the potential collapse of USDe, drawing parallels to the TerraUSD (UST) debacle. Cronje’s apprehensions stem from Ethena’s use of perpetual contracts and its reliance on yield-based collateral.
Ki Young Ju, the founder of CryptoQuant, echoed Cronje’s warning and focused on Ethena’s plans to integrate Bitcoin (BTC) as a backing asset for USDe. Ju questioned the platform’s ability to maintain a delta-neutral BTC strategy during bear markets, raising concerns about the potential need to sell BTC to stabilize the peg.
Despite these concerns, USDe has become the fifth-largest stablecoin by capitalization. Ethena’s native token, ENA, experienced a significant price increase from $0.62 to $1.25 in less than two days following the successful airdrop. However, the current trading price of ENA stands at $0.99.
As Ethena continues to grow, it will be crucial for the project to address sustainability concerns and ensure the stability of USDe to maintain investor confidence and success in the long run.