Ethena Sees $1B Inflows as Crypto Rally Brings Back Double-Digit Yields

The protocol's rejuvenation is driven by elevated perpetual funding rates, with more catalysts ahead for growth.

Ethena's yield-bearing token enjoyed a $1 billion capital inflow in November as crypto markets surged, bringing back double-digit yields.

The USDe token, which is marketed as a “synthetic dollar” with its price pegged at $1, saw new capital flock to the protocol in November, pushing its market capitalization up to $3.44 billion, as per DefiLlama data. This marks a 5% decrease from its record high of $3.6 billion in July.

Ethena's strategy involves using bitcoin (BTC) and ether (ETH) as backing assets for USDe, pairing them with an equal value of short perpetual futures positions on various exchanges. This strategy enables Ethena to generate revenue on its backing derivative assets when the perpetual funding rates are positive and pass on some of the income as yield to investors.

However, perpetual funding rates turned negative in August and September, making Ethena's strategy less favorable to investors with yields lower than the risk-free rate for the U.S. dollar. As a result, investors withdrew $1.2 billion from the protocol between July and October.

Now, with crypto markets surging again, Ethena offers a 29% annualized yield to holders who stake their tokens, as stated on the project's website.

More catalysts are in place that could fuel further growth for Ethena.

For instance, decentralized lending giant Aave has added staked USDe tokens among its available collateral assets, allowing users to borrow against the tokens while earning a yield.

"Expect that the Aave integration […] will be a multi-billion supply sink for USDe within the next month, and two new CEX collateral listings are dropping within the next week," Guy Young, Ethena's co-founder and CEO, said in an X post on Friday.

Moreover, Ethena plans to start sharing protocol revenues with governance token (ENA) holders after the project's risk committee approved a governance initiative last week. This plan was proposed by crypto trading firm Wintermute on Nov. 6, following Donald Trump's election victory. Industry players anticipate more appeasing regulations for decentralized finance (DeFi) protocols under a Trump presidency.