Up nearly 50% in a week, could ENA be ETH's biggest Beta?

Original | Odaily Planet Daily (@OdailyChina)

Author｜Azuma (@azuma_eth)

ETH is finally standing strong!

With the continuous rise of the "altcoin leader" ETH, the altcoin market has shown signs of recovery. Mainstream projects in the Ethereum ecosystem such as Ethena (ENA), Lido (LDO), Curve (CRV), Frax (FRAX) have seen even more significant gains. Among them, ENA briefly broke through $0.5, with a weekly increase of nearly 50% (this is on top of a previous rally when ENA was listed on Upbit more than a week ago), standing out among several so-called "ETH betas".

Regarding the reasons behind ENA's strong rise, based on various analyses, we believe it can be attributed to the following four major reasons.

USDe will be collateralized by an equivalent amount of spot longs and contract shorts, with its income mainly derived from "staking income of spot longs" and "funding rate income of contract shorts",where the first type of income does not fluctuate much, and the second type is the key to the protocol's operation.

The funding rate of contracts depends on the market's long-short game, which itself is highly uncertain. Although in the long run, the funding rate is positive most of the time (meaning contract shorts generally receive positive rate income), when market sentiment is pessimistic, the rate can continuously decrease or even turn negative — this significantly affects Ethena's protocol income capability, even leading to short-term losses.

• Odaily Note: For basic concepts of Ethena and the impact of rate fluctuations, please refer to "Analysis of Ethena Labs: A $300 Million Valuation, The Stablecoin Disruptor in Arthur Hayes' Eyes" and "After the Crash, How Does Ethena (USDe) Perform Under Negative Rates?".
  

For a considerable period before, due to the overall pessimistic market sentiment, the funding rates in the contract market remained low, which also led to Ethena's protocol income level and sUSDe (the interest-bearing version of USDe after staking) yield being less than ideal for a long time.

However, with the recent rapid recovery of the market (especially the rise in ETH's price, as ETH is Ethena's main arbitrage target), the contract funding rate levels have been climbing — Ethena's page shows that the protocol's current average annualized funding rate is about 16%.

The yield from the funding rate market directly affects sUSDe's yield. In the past two weeks, sUSDe's average yield has increased from about 5.59% to 9.74%, which has directly attracted more capital inflow — On-chain data shows thatUSDe's issuance scale has grown to about $6.1 billion, setting a new historical high.

In short, this is a positive flywheel: Market recovery ➡️ Increased bullish sentiment ➡️ Growth in funding rate income ➡️ Higher stablecoin yield ➡️ More capital inflow ➡️ Growth in stablecoin issuance scale ➡️ Improvement in protocol fundamentals ➡️ Stronger support for the token price……

The following chart can more intuitively present this logic; there is a noticeable synchronization between ENA's price fluctuations and the changes in ETH's contract scale.

Odaily Note: For details, see "Historic Moment: Trump Officially Signs the GENIUS Act".

Although USDe's collateral structure may not meet the GENIUS Act's requirement that "stablecoins must be fully supported by dollars or other highly liquid assets at a 1:1 ratio", Ethena has already made preparations — At the end of last year, Ethena launched a new stablecoin product USDtb supported by BlackRock's BUIDL, which will be backed by cash or cash-equivalent reserves at a 1:1 ratio. As of writing, USDtb's issuance scale has also grown to $1.46 billion.

Simply put, Ethena is now walking on two legs, with USDe focusing on the crypto-native market and USDtb targeting the compliant institutional market.

✅USDe circulation: Requires over $6 billion, currently at $6.1 billion,达标.

✅Cumulative protocol income: Requires over $250 million, currently at $431.31 million,达标.

❌Exchange adoption: Requires USDe to be listed on 4 of the top 5 derivatives exchanges by volume, currently on 3,未达标.

✅Reserve fund: Requires over 1% of USDe supply,达标.

❌Yield spread between sUSDe and benchmark rates: Requires 5.0-7.5%, current spread with Aave USDC is 3.03%, with US Treasury bonds is 2.48%, with sUSDS is 2.05%,未达标.

From the above, three out of five requirements have been met. Considering the recent upward trend in funding rates, sUSDe's yield is also rising, which will help meet the fifth condition, and only one more exchange integration is needed for the third requirement.

It seems that the activation of the "fee switch" is not far away, and the market may choose to place early bets at this time.

On-chain analyst Yu Jin monitored last week that Arthur purchased a total of $1.505 million worth of ENA through multiple channels in one day.

You can't fully believe what Arthur says, but what he does has some reference value……

• Odaily Note: For reference, read "When Arthur Hayes Suddenly Praises the Coin You Bought, You Should Be Careful".

Considering the above reasons, it can be predicted that in the coming period, ENA's fundamental growth trend and value capture expectations will continue, which may support its current price trend. With ETH's momentum strong, ENA might be a potential Beta choice.