The cryptocurrency market has experienced a severe downturn over the weekend. Bitcoin plummeted below $60,000 yesterday and continued dropping to $49,000 today, marking an 18.5% decline in 24 hours. Ethereum fared worse, crashing 25% to under $2,100. This market-wide slump has exacerbated the already cooling crypto space, delivering a crushing blow to the stagnant DeFi sector.
According to DeFiLlama data, Ethena Labs' revenue has shrunk dramatically since March, with current monthly earnings at just $1.03 million—a staggering 96% drop from its peak of $26.26 million. At this rate (past 30-day income × 12), Ethena Labs' annual revenue would amount to merely $12.55 million.
How USDe's Mechanism Works
Ethena Labs' stablecoin USDe maintains its peg through:
- Collateral in BTC, stETH, and inherent yields
- Bitcoin/ETH short positions to balance delta
- Perpetual futures funding rates
This strategy captures ETH staking rewards and funding rate premiums while hedging with short positions. However, this model thrives primarily in bullish markets where high funding rates sustain returns.
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Negative Funding Rates Spell Trouble
Recent data reveals alarming trends:
- Bitcoin average funding rate: -4.34%
- Ethereum average funding rate: -28.34%
- $10.2B in liquidations (89% long positions) in 24 hours
The protocol faces mounting challenges as:
- USDe supply dropped significantly during July's downtrend
- ETH whales faced multi-million dollar liquidations
- ENA token plunged 21% to $0.232
- $60M in sUSDe unstaked within a week
Sustainability Concerns in Bear Markets
While Ethena achieved impressive yields during Q1 2024 (peaking at 113.34%), recent performance tells a different story:
- April saw negative protocol yields (-2.09%)
- Current yields stagnate below 20%
- TVL stands at $3.18B with $46.5M reserves
The protocol's collateral composition shifted toward BTC (48%) from ETH (30%), reflecting Ethereum's weaker performance.
Industry Perspectives on USDe
MakerDAO founder Rune Christensen previously proposed allocating 600M DAI to USDe, but community pushback highlighted concerns about:
- Market-condition dependency
- Depegging risks during volatility
- Systemic fragility as TVL grows
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FAQ Section
Q: Why did Ethena's revenue drop 90%?
A: The combination of market downturn and negative funding rates severely impacted its primary income source.
Q: Can USDe maintain its peg during extended bear markets?
A: The mechanism struggles when funding rates turn negative for prolonged periods, requiring alternative revenue streams.
Q: What percentage of Ethena's collateral is Bitcoin?
A: Currently 48%, up from previous allocations due to Ethereum's weaker performance.
Q: How does Ethena generate yield?
A: Through ETH staking rewards and perpetual swap funding rates—both highly market-dependent.
Q: What happens if funding rates stay negative?
A: The protocol must pay exchanges to maintain positions, potentially leading to unsustainable losses.
Survival Prospects
Ethena's innovative mechanism faces its ultimate stress test. While bull markets showcased its potential, prolonged bear conditions expose vulnerabilities. The protocol's ability to adapt—whether through collateral diversification, yield alternatives, or risk mitigation strategies—will determine its longevity in this punishing market cycle. Investors should monitor:
- Funding rate trends
- Collateralization ratios
- Protocol yield sustainability
- Community governance decisions
As the crypto winter persists, Ethena must prove its model transcends market cycles rather than merely benefiting from favorable conditions.