ENA Will Surpass MKR, and USDe Is Destined to Replace DAI as the Leading Decentralized Stablecoin

By Felix output: title: ENA Will Surpass MKR, and USDe Is Destined to Replace DAI as the Leading Decentralized Stablecoin

As DeFi continues to grow in popularity, the need for a decentralized, censorship-resistant stablecoin becomes increasingly evident. Among the various stablecoins in the market, MakerDAO's DAI has been leading the way, with UST briefly surpassing it in terms of market capitalization in 2022.

However, DAI's overcollateralized model is capital inefficient, and the fees generated by the MakerDAO protocol only go to the DAO, not to stablecoin holders. In contrast, Ethena Labs' USDe is a yield-bearing stablecoin that provides a more efficient and rewarding alternative.

In this article, we will delve into the reasons why we believe Ethena's USDe is poised to overtake DAI as the leading decentralized stablecoin. We will also analyze the current stablecoin landscape, USDe's token economics, and a valuation and scenario analysis of Ethena's native token, ENA.

Current Stablecoin Landscape

Several key trends are shaping the stablecoin market:

- Decentralized stablecoins, such as USDe, are gaining traction due to their alignment with the ethos of Web3 and DeFi.

- Yield-bearing stablecoins, like USDe, are attracting investors seeking passive income opportunities, driving the growth of these stables.

- Stablecoins are poised for massive growth, with some predicting a market cap of $1 trillion by 2030, especially considering Trump’s victory and stablecoin regulations expected to be passed as soon as this year. Hence, presenting Ethena with a large growth opportunity.

USDe Token Economics

USDe token economics can be broadly divided into two parts:

- USDe stakers earn a yield, which is a portion of the PNL generated by Ethena's hedging activities. This yield is paid out daily to stakers.

- A specific portion of USDe stakers' yield is used to calculate Ethena's revenue, which is then used to derive a P/Revenue multiple for Ethena.

The following chart showcases how USDe stakers received over $100 million in yields:

Next, assuming a specific collateral split (shown below) and applying the yield on that collateral from Ethena’s dashboard (https://app.ethena.fi/dashboards/hedging/BTC), we can deduce the yield the protocol earned:

Combining these two points, we can derive the total profit and loss (PNL) of the Ethena protocol, which is an estimated annualized PNL of $62 million:

This puts ENA's MC/revenue multiple at 26x, which is more favorable compared to some other top DeFi projects (not based on FDV, of course, token unlocking is a key hurdle for the project).

ENA Valuation: Scenario Analysis

The above assumptions lead to some logical deductions, which can be used to estimate Ethena's valuation by the end of next year. These assumptions will serve as the basis for the analysis that follows.

It's important to note that Ethena's business model is predicated on a certain percentage of USDe remaining unstaked. This allows them to pay USDe holders more than they earn on the collateral while still maintaining an operating income margin of $0.04 per $1 USDe market cap.

Note: The collateral yield is based on the collateral split shown earlier and applied to the full year. Actual numbers may therefore differ slightly.

Two numbers drive Ethena's growth: USDe's market share and the overall growth of stablecoins.

The base case (highlighted in blue) assumes that USDe doubles its market share and that stablecoins grow 75% over the next year. This estimate is considered quite conservative by the author, and the bullish case (orange) is also very reasonable: USDe grows to 5% market share and total stablecoins grow 150%, bringing USDe's market value to nearly $23 billion. Green represents the bearish case, where USDe's market share does not grow, while the total stablecoin market value grows slightly by 25%.

Based on the assumed revenue margin of $0.04 as discussed earlier, ENA's revenue for next year would be as follows:

Using an assumed 30x revenue multiple, we arrive at ENA's market cap in the table below. It's worth noting that the author anticipates 2025 to be a very strong year for crypto assets, with valuations outpacing fundamentals. 30x is only slightly higher than ENA's current multiple of 26x, so the potential upside for the following scenario analysis is much higher:

Finally, we can derive price targets and upside potential based on the market cap table and the expected circulating supply of ENA (which will almost double by the end of 2025) (see the previous