Ethena’s USDe has become the third-largest stablecoin, surpassing DAI and USDS

Ethena’s synthetic stablecoin USDe has vaulted into the top tier of the digital dollar market, overtaking DAI and USDS to claim the third spot by market capitalization in the stablecoin ladder. 

The rise in adoption, coupled with progress on governance milestones, has brought Ethena’s long-anticipated “fee switch” closer to reality, as this will allow ENA token holders to share in protocol revenues for the first time.

USDe’s circulating supply rose by about 42% in roughly one month, taking its market capitalization to over $12.4 billion. This surge allowed it to climb to third position in the stablecoin market, coming in behind only Tether’s USDT and Circle’s USDC in terms of size.

Ethena’s fee switch milestone is within reach

Ethena Labs’ ENA “fee switch” proposal was approved in November 2024, which will allow it to redistribute a portion of the protocol’s revenue stream to ENA token holders.

However, it listed three milestones that it had to achieve before the process of redistributing revenue with holders could begin. Those milestones were:

• Surpassing $6 billion in USDe supply.
• The second is having a cumulative protocol revenue of at least $250 million
• The third milestone was to secure listings for USDe on four of the top five centralized exchanges ranked by derivatives trading volume.

Ethena has already achieved the first two out of the three milestones. The only piece that’s still pending is the centralized exchange integrations.

Guy Young, Ethena’s founder, reportedly stated that achieving the third milestone is a top priority for them.

For ENA holders, the move could transform the token’s role from a governance asset into one with tangible yield streams.

USDe is a different type of stablecoin

Unlike USDT and USDC that rely on bank reserves, USDe uses a delta-neutral strategy to stay pegged. Instead of parking cash or Treasuries in accounts, it hedges user deposits with short positions on centralized exchanges, aiming to build a buffer against price swings.

That unusual setup has helped it gain traction, especially as DeFi users look for fresh yield opportunities in the wake of new U.S. stablecoin rules.

However, not everyone is convinced of Ethena’s strategy as S&P Global flagged USDe with higher risk scores because of its dependence on derivatives, while Chaos Labs has raised red flags over possible rehypothecation and liquidity strains if funding rates swing out of balance.

Much of USDe’s rise has been powered by strategies that combine stablecoin issuance with DeFi yield loops. On-chain integrations with protocols like Aave and Pendle have enabled recursive lending structures that boost returns for large players.

In practice, this allows users to deposit USDe, borrow against it, and redeploy the proceeds into additional yield-generating positions, compounding earnings across multiple layers.

The flywheel effect has drawn in institutional players as well as retail traders. Ethena’s design makes it attractive to entities looking for both stable on-chain dollars and exposure to derivatives funding payments.

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