Ethena Protocol (ENA), the project responsible for the creation of the USDe synthetic dollar stablecoin, has experienced a surge in total value locked (TVL) exceeding $2 billion. This rapid growth has raised concerns among industry experts, drawing comparisons to the Terra (LUNA) controversy.
According to data from DefiLlama, Ethena’s TVL was valued at $1.54 billion on April 1. In just four days, it has surpassed the $2 billion mark, indicating a growth rate of approximately 30%. This significant increase reflects the growing interest from investors in Ethena’s offerings.
Investors appear to be enticed by the protocol’s enticing 27% annual percentage yield (APY) and the recent airdrop of the ENA token, which granted eligible users 750 million tokens.
Another noteworthy development comes from MakerDAO, the overseer of the DAI stablecoin, as they explore a sizable allocation of 600 million DAI to USDe through Morpho Labs.
Ethena’s surge is supported by substantial backing from prominent investors like Delphi Digital, Wintermute, and Galaxy Digital, lending an air of credibility to the platform.
However, Ethena’s rapid growth has prompted some warnings. Renowned figure in the decentralized finance (DeFi) industry, Andre Cronje, expressed concerns about the potential collapse of USDe similar to the TerraUSD (UST) debacle. Cronje’s apprehensions center around Ethena’s use of perpetual contracts and its reliance on yield-based collateral.
Ki Young Ju, the founder of CryptoQuant, echoed Cronje’s warning, focusing on Ethena’s plans to integrate Bitcoin (BTC) as a backing asset for USDe. Ju questions Ethena’s ability to maintain a delta-neutral BTC strategy during bear markets.
Despite these cautionary voices, USDe has become the fifth-largest stablecoin in terms of market capitalization. Additionally, 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, as of now, ENA is trading at $0.99.
The critical concerns raised by industry experts add an element of uncertainty to Ethena’s future success, leaving investors wondering if the project’s growth will outweigh sustainability concerns.