Encryption venture capital ParaFi looks at the risks and opportunities of Ethena: impressive yield performance, TVL still has room for growth.

In less than 18 months, Ethena has established a core position in the decentralized (DeFi) and centralized finance (CeFi) infrastructures at an astonishing speed, with its stablecoin USD becoming the fastest dollar asset to break the 5 billion USD supply mark in history. Crypto venture capital ParaFi analyzes Ethena from three perspectives, revealing its price stability, yield strategy, and potential limitations.

1/ In less than 18 months, Ethena has become a bedrock across both Decentralized Finance and CeFi infrastructure.

Ethena’s USDe has become the fastest USD asset to reach 5bn in supply. With Ethena’s rapid growth, the ParaFi team wanted to do a deep dive into the protocol’s mechanics. We… pic.twitter.com/vC5SDWqaqp

— ParaFi Capital (@paraficapital) April 17, 2025

The stablecoin USDe maintains a strong peg.

First, ParaFi discovered that the USDe stablecoin issued by Ethena demonstrated high resilience in the face of extreme market volatility. Over the past year, even when Bitcoin experienced eight instances of intraday declines exceeding 10%, and even during the largest hacking incident in the history of the encryption field, USDe remained within a fluctuation of no more than 0.5% around its peg of 1 USD.

Since its launch, the protocol has processed redemption amounts of up to 3.3 billion USD, successfully handling 409 million USD in redemptions within just two weeks after the "Liberation Day" of Trump's tariffs in April this year, demonstrating its highly reliable clearing mechanism.

The performance of earnings is impressive.

sUSDe is one of the DeFi yield indicators.

As the staked version of USDe, sUSDe is quickly becoming a "key reference point for measuring market risk appetite and return capacity" in the DeFi space. The annualized return rate (APY) for sUSDe has averaged 12.3% over the past six months, significantly surpassing MakerDAO's 8.8% and Bitcoin's 9.2%.

This income mainly comes from the "funding rate arbitrage (basis trade)" strategy, where 93% of the trading days have a positive funding rate. In addition, since only 43% of USDe is staked, the income is concentrated among a smaller group of holders, while the "cross-margin" mechanism of the custodial structure enhances capital efficiency.

Flexible asset allocation strategy

At the same time, Ethena dynamically manages its collateral, adjusting strategies according to market conditions, covering "funding rate arbitrage, stablecoin yields, and government bond interest yields." In December 2024, the USDtb stablecoin issued by the BUIDL product supported by BlackRock will be introduced, with a current supply exceeding 1.4 billion USD.

Currently, 72% of the collateral in the protocol consists of highly liquid stablecoins, compared to 53% and 28% for BTC and ETH, respectively, at the end of 2024, demonstrating a clear shift towards stable yield assets in response to market changes.

TVL growth still has room for expansion and has not yet reached the ceiling.

Even though the supply of USDe has reached 5 billion USD, the total locked value of Ethena (TVL) accounts for only 12% of the total open interest in BTC, ETH, and Solana perpetual contracts. Even during the rapid expansion period at the end of 2024, its supply share only reaches 14%, indicating that it is still far from reaching the market capacity limit.

Ethena's products are also deeply embedded in multiple DeFi protocols: USDe accounts for about 60% of Pendle TVL and about 12% of Morpho TVL. Even though the overall TVL of DeFi has fallen by 23% since 2025, USDe has only slightly fallen by 17%, showing a relatively resilient market performance.

ParaFi finally pointed out that attention should still be paid to the following risks and opportunities in the future:

opportunity

The expansion and integration situation of USDtb: Whether USDtb can expand and integrate more Decentralized Finance protocols or sources of income in the future will directly affect the protocol stability and yield performance of Ethena.

The institutional adoption potential of iUSDe: If it gains favor from traditional financial institutions, it will enhance market trust, bring new funding sources to Ethena, and become an important milestone for its expansion into the mainstream market.

The upcoming Converge network: further expanding the Ethena ecosystem, focusing on simplifying user experience and providing more tokenized asset yield opportunities for institutions.

USDe application scenarios: Currently, USDe is mainly used for staking rewards in Decentralized Finance (DeFi). If it develops into a stablecoin for everyday payments or commercial transactions, it will significantly enhance its liquidity and market demand.

(Converge 2025 Roadmap: High-speed, secure, low-cost connection between RWA and Decentralized Finance future)

risk

Supply performance of USDe under negative funding rates: Negative funding will compress Ethena's revenue sources, thereby affecting the issuance momentum and overall supply growth of USDe.

Exchange operation risks: Ethena's hedging and fee arbitrage strategies rely on CEX. In the event of system failures or security risks, it may jeopardize the stability of the protocol.

The dark horse stabilizes its foundation, Ethena moves towards the next stage of growth.

Since its launch less than 18 months ago, Ethena has not only become a dark horse in the encryption field but has gradually become a key infrastructure in the stablecoin and yield markets. By combining innovative yield models, flexible asset allocation, and stable peg performance, its diverse products have achieved substantial market share in DeFi.

However, as ParaFi pointed out, the future development of Ethena will still depend on its ability to respond to market changes. If it can maintain its footing, it may become an indispensable part of the encryption financial system.

This article discusses the risks and opportunities of encryption venture capital ParaFi looking at Ethena: impressive yield performance, and there is still room for growth in TVL. First appeared on Chain News ABMedia.