From 0 to $12.4 billion in a blitz, how did Ethena create the fastest-growing "money printing machine" in history?

Author: thetokendispatch

Compiled by: Vernacular Blockchain

USDe, a crypto protocol launched just 18 months ago, has already reached a circulating market capitalization of $12.4 billion, setting a record for the fastest growth in the history of the digital dollar. In comparison, USDT didn't reach $12 billion until mid-2020 (after years of slow growth), and USDC only broke through $10 billion in March 2021. Ethena's USDe, on the other hand, seems to have achieved a breakneck speed in the financial arena.

How did they achieve this so quickly? What are the risks involved? Is this model sustainable, or is it just another Terra (Luna) that could collapse at any moment?

The world's largest arbitrage transaction

Ethena has found a way to transform the crypto market's insatiable thirst for leverage into a money-making machine. Simply put: holding crypto assets while simultaneously short-hedging an equal amount in the futures market and pocketing the difference. This creates a stable synthetic dollar while also profiting from crypto's most reliable money-printing machine.

How to do it specifically?

When someone wants to mint USDe, they deposit a crypto asset like Ethereum (ETH) or Bitcoin. But instead of just holding onto these assets (because they are too volatile), Ethena immediately opens a short position of the same amount on a perpetual futures exchange.

If ETH rises by $100, the spot position earns $100, but the short position loses $100.
If ETH drops by $500, the spot position loses $500, but the short position earns $500.

The result? Regardless of price fluctuations, the value of the dollar remains stable. This is known as a "delta-neutral" strategy; you won't make or lose a fortune on price fluctuations.

Where does the 12-20% return come from? There are three sources:

Staking income: Ethena will stake the deposited ETH and obtain an annualized staking reward of approximately 3-4%.
Funding rate: The funding rate they charge for short positions. In the crypto perpetual futures market, traders pay funding fees every 8 hours to maintain their positions. When bullish market sentiment prevails (approximately 85% of the time), longs pay shorts. Ethena consistently sides with shorts and collects these fees. In 2024, Bitcoin's funding rate averaged 11% and Ethereum's 12.6%, representing real cash flow.
Reserve asset income: Ethena holds cash equivalents and Treasury products, such as USDC’s loyalty rewards or BlackRock’s BUIDL fund, which generate additional income.

In 2024, these sources generated an average annualized return of 19% for sUSDe holders. Over the past few years, funding rates in the crypto market have averaged 8-11%. Combined with staking returns and other income, USDe's returns are more than enough to allow for peace of mind. Isn't this exactly what we're striving for?

 Image source: ethena.fi

The four major tokens of the Ethena ecosystem

The Ethena ecosystem is supported by four tokens, each with different functions:

USDe: A synthetic USD, aiming to maintain a stable value of $1, achieved through delta-neutral hedging. It generates no yield unless staked, and can only be minted or redeemed by whitelisted participants.

 Image source: ethena.fi/

sUSDe: A yield-generating token earned from staking USDe, stored in an ERC-4626 vault. All Ethena protocol revenue is distributed to sUSDe holders, with its value increasing with regular deposits of protocol revenue. Users can unstake their USDe after a cool-down period and redeem it for USDe.

ENA: A governance token that allows holders to vote on key protocol matters, such as acceptable collateral assets and risk parameters. ENA will also support the future security model of the ecosystem.

sENA: Tokens used to stake ENA. A future "fee switch" mechanism will allocate a portion of protocol revenue to sENA holders. Currently, sENA can receive ecosystem allocations, such as the 15% token allocation proposed by Ethereal.

But there's a big problem: all of this assumes a persistently bullish market, one willing to pay fees for long positions. If market sentiment reverses and funding rates turn negative, Ethena will need to pay fees, not receive them. This is a key risk, which we'll delve into later.

2025, the year of Ethena's explosion

USDe has become the fastest-growing digital dollar in history, driven by several forces:

The perpetual futures market exploded: in August 2025, total open interest for major altcoins reached $47 billion, and Bitcoin reached $81 billion. The surge in trading volume meant more funding rate opportunities, and Ethena profited from this.

 Source: defillama.com

A frenzy of financial engineering: Users discovered they could stake USDe to obtain sUSDe (yield tokens), tokenize sUSDe on Pendle (a yield derivatives platform), and then use these tokens to collateralize more USDe on Aave (a lending protocol), repeating the cycle. This recursive yield cycle allowed savvy traders to amplify their exposure to USDe yields. The result? 70% of Pendle's deposits are Ethena assets, and Aave holds $6.6 billion in Ethena assets. This "leverage within leverage" strategy is chasing double-digit returns.

 Image source: dune

SPAC boost: A SPAC called StablecoinX plans to raise $360 million specifically for accumulating ENA tokens, creating a "permanent capital" buyer, reducing selling pressure, and supporting decentralized governance.

Ethereal Perpetual DEX: Built specifically for USDe, Ethereal has already attracted $1 billion in locked-in value (TVL) before its mainnet launch. Users deposit USDe to earn points for future token airdrops, creating a huge demand for USDe.

Convergence Chain: A permissioned L2 chain developed by Ethena and Securitize, using USDe as its native gas token, attracts traditional financial institutions to enter through KYC compliance infrastructure, creating structural demand.

Expectations of Fed rate cuts: The market anticipates two rate cuts by the end of 2025, with an 80% probability of a September cut. Rate cuts typically stimulate risk appetite and drive up funding rates. USDe yields are negatively correlated with the federal funds rate, so rate cuts could significantly boost Ethena's revenue.

 Image source: mirror.xyz

Fee Switch Proposal: Ethena governance has adopted a five-criteria framework for distributing revenue to ENA holders. Four of these criteria have been met: USDe supply exceeding $6 billion (currently $12.4 billion), protocol revenue exceeding $250 million (already exceeding $500 million), Binance/OKX integration (completed), and a sufficient reserve fund. The only remaining condition is that sUSDe's yield must be at least 5% higher than sUSDtb, a key safeguard for the protocol and sENA holders.

Ethena has also established partnerships with traditional financial players and crypto exchanges, making USDe available on platforms ranging from Coinbase to Telegram wallets.

Institutional boom

Unlike earlier stablecoins that relied solely on crypto-native use cases, USDe has attracted the attention of traditional financial institutions. Coinbase’s institutional clients have direct access to USDe, CoinList offers a 12% annualized yield on USDe through its earning program, and major custodians like Copper and Cobo manage Ethena’s reserve assets.

This institutional adoption model is similar to that of USDC and USDT, but on a much shorter timeline. While traditional stablecoins took years to establish institutional relationships and regulatory compliance frameworks, Ethena achieved this in a matter of months. This was driven by a mature regulatory environment and the allure of high yields.

Institutional adoption brings credibility, which attracts more capital. More capital means greater funding rate capture, supporting higher returns and attracting more institutions. This is an ever-accelerating flywheel that can continue to operate as long as the underlying mechanisms are in place.

But it’s important to note that USDDe’s rapid growth is due to the fact that USDT and USDC have paved the way and proven the usefulness, security, and legitimacy of stablecoins.

Leverage squared

USDe's high concentration on Pendle and Aave creates a single point of failure risk. If Ethena's model falters, it would impact not only USDe holders but also the entire DeFi ecosystem that relies on Ethena's liquidity. 70% of Pendle's business and a significant portion of Aave's deposits are pegged to Ethena. A failure of USDe could trigger a liquidity crisis across the entire DeFi industry, not just a decoupling of stablecoins.

Even more worrying is user behavior. The recursive lending cycle on Aave and Pendle amplifies both returns and risks. Users stake USDe to obtain sUSDe, tokenize sUSDe on Pendle to obtain PT tokens, and then use PT tokens to collateralize and borrow more USDe on Aave, repeating the cycle. This leverage-multiplying strategy is reminiscent of the CDO square structure during the 2008 financial crisis—using one financial product as collateral to borrow more of the same product, creating recursive leverage that is difficult to quickly liquidate.

If funding rates remain negative, USDe may face redemption pressure, leveraged positions may trigger margin calls, and protocols that rely on USDe locked-in amounts may face large-scale capital outflows. The deconstruction process may be faster than any single protocol can cope with.

Where are the risks?

Any high-yield strategy ultimately faces a question: what happens if it stops working? For Ethena, there are several potential risks:

Sustained negative funding rates: If market sentiment remains bearish, Ethena will need to pay funding fees, rather than receiving them. Their $60 million reserve fund provides a buffer, but it is not unlimited.
Exchange counterparty risk: While Ethena uses over-the-counter custody for spot assets, it still relies on major exchanges to maintain short positions. If an exchange goes bankrupt or is hacked, Ethena may need to quickly migrate positions, temporarily breaking its delta-neutral hedge.
Liquidation risk of leveraged cycles: If USDe returns suddenly drop, recursive lending positions may become unprofitable, triggering a wave of deleveraging and causing selling pressure on USDe.
Regulatory pressure: European regulators have forced Ethena to relocate from Germany to the British Virgin Islands. As yield-generating stablecoins gain traction, they may face stricter compliance requirements or restrictions.

Stablecoin Wars

Ethena marks a fundamental shift in the stablecoin competition. In the past, competition revolved around stability, adoption, and regulatory compliance. USDC and USDT competed on transparency and oversight, while algorithmic stablecoins emphasized decentralization.

USDe changed the game with its yield. It was the first major stablecoin to offer double-digit returns to holders while maintaining its USD peg. This put pressure on traditional stablecoin issuers, who pocketed all the Treasury bond returns without sharing them with their users.

The market is responding. USDe's stablecoin market share has surpassed 4%, surpassing only USDC (25%) and USDT (58%). More importantly, USDe's growth has far outpaced both: over the past 12 months, USDT has grown 39.5%, USDC has grown 87%, and USDe has grown over 200%.

If this trend continues, the stablecoin market could be fundamentally reshaped, with users shifting from non-yielding stablecoins to yield-generating alternatives, and traditional issuers forced to either share in the profits or see their market share eroded.

summary

Despite the risks, Ethena's momentum shows no signs of slowing down. The protocol just approved BNB as a collateral asset, and XRP and HYPE tokens have also reached inclusion thresholds. This expands their market access beyond ETH and Bitcoin to a wider range of assets.

The ultimate test will be whether Ethena can manage systemic risk while maintaining its yield advantage. If successful, they will have created the first scalable, sustainable, yield-generating dollar in crypto history. If not, we will witness another dangerous story of chasing high yield.

Regardless, USDe's feat of reaching $12 billion in 18 months proves that when innovation is combined with market demand, financial products can expand at an unimaginable speed.