Considering the recent surge in ENA, how did the USDe supply increase by $3.7 billion in 20 days?

Original Author: @shaundadevens

Foreword

As decentralized finance (DeFi) continues to evolve, various innovative yield strategies have emerged. Recently, Blockworks analyst Shaunda Devens (@shaundadevens) detailed how Ethena's USDe stablecoin saw a supply surge of 3.7 billion USD in just 20 days, driven by the Pendle and Aave-introduced PT-USDe rotation strategy. This strategy, by splitting principal and yield tokens, combining with borrowing leverage, has greatly amplified the yield potential. At the same time, its potential risks should not be overlooked. Building upon Devens's analysis, this article will explore the core mechanics, yield composition, and risk considerations of this strategy.

1. Supply Surge and Mechanism Overview

Shaunda Devens's tweet on August 6, 2025, highlighted that Ethena's USDe supply grew by $3.7 billion in 20 days, mainly propelled by the PT-USDe rotation strategy based on Pendle and Aave. Currently, around 43 billion USD (60% of USDe's total supply) is locked in Pendle, with an additional 30 billion USD deposited in Aave.

USDe is a decentralized stablecoin that maintains a peg to the US dollar through an ETH perpetual contract's directionless hedging algorithm, generating revenue through spot collateralization and perpetual contract funding rates. However, this revenue is highly dependent on funding rates, with its fluctuation closely tied to the perpetual contract price premium or discount relative to the ETH spot price.

Devens noted, "When bullish sentiment rises, traders go leveraged long, the perpetual price briefly exceeds the mark price, positive funding rate incentivizes market makers to short the perpetual and conduct spot hedging," while the opposite scenario may result in a negative funding rate, leading to price inversion. She cited the extreme mismatch in AUCTION-USDT, where spot buying and perpetual selling caused a spot premium, with an 8-hour funding rate reaching -2%, approximately 2195% annualized.

2. Pendle PT Rotation Strategy and Its Synergies

This volatility has driven demand for more predictable yield products: Pendle's PT-loop strategy. Pendle previously introduced a token model that separates principal from yield: Principal Token (PT) and Yield Token (YT). PT can be redeemed for 1 USDe at maturity, currently trading at a discount to face value, similar to a zero-coupon bond. The discount price implies an annualized yield for YT based on the remaining term.

This design provides USDe holders with a tool to lock in a fixed income, mitigating the risk of funding rate fluctuations. Historically, during periods of high funding rates, the annualized yield has exceeded 20%, currently around 10.4%。 Additionally, PT token holders receive a 25x bonus in Pendle's SAT token.

Pendle's Total Value Locked (TVL) has reached $6.6 billion, with $4.01 billion (approximately 60%) coming from Ethena's USDe market. These two entities have a high level of synergy, as Pendle resolves the USDe yield volatility issue, but capital efficiency remains limited. YT buyers efficiently gain exposure to yield, while PT holders, needing to lock $1 as collateral, only benefit from the spread.

III. Leveraged Rotation Strategy and Risk Management

To improve capital efficiency, users engage in leveraged rotation through the money market, repeatedly borrowing and pledging to amplify returns. An example of the strategy is depositing sUSDe, borrowing USDC at a 93% collateralization rate, then exchanging the USDC back to sUSDe, repeating the process to achieve approximately 10x leverage. As long as the USDe annual yield exceeds the USDC borrowing cost, the strategy remains profitable.

However, if the yield drops sharply or borrowing rates surge, profits will quickly erode。 The main risk lies in the price oracle design。 A large position depends on AMM oracles, which are vulnerable to temporary price deviations, triggering a chain of liquidations and forcing borrowers to sell collateral assets at a significant discount, even if adequately collateralized。 The Devens incident with a similar event involving ezETH/ETH rotation serves as a warning。

To mitigate risk, Aave has made two key architectural adjustments。 First, in response to the risk team highlighting the potential liquidation risk of sUSDe borrowing, the Aave DAO has directly pegged the USDe exchange rate to USDT, eliminating the main risk factor, leaving only interest rate risk。

Second, Aave accepts PT-USDe tokens directly as collateral, allowing users to leverage fixed-rate positions, breaking the dual constraints of capital efficiency and revenue volatility。 Aave uses a linear discounting method to price PT collateral, based on the implied annual percentage yield of the PT token, anchored to the USDT peg。

The PT price behaves like a zero-coupon bond, gradually returning to face value as it approaches maturity, making the returns more predictable。 Since September last year, the leveraged rotation strategy has achieved approximately 40% annualized returns, equivalent to earning $0.374 for every $1 invested。

IV. Risk Management and Systemic Protection Mechanisms

Devens points out that Pendle's yield has been consistently higher than borrowing costs, with an unleveraged spread averaging around 8.8%。 The PT oracle designed by Aave includes a price floor and an emergency shutdown mechanism。 Once triggered, the loan-to-value ratio (LTV) immediately drops to zero, the market freezes, and defaults are prevented。

Using the example of the Pendle PT-USDe expiring in September, the risk team has set the initial discount rate for the oracle at 7.6% annually, with the highest discount rate under extreme market pressure reaching 31.1%。 An emergency shutdown is triggered if exceeded。 The design of a secure LTV ensures that when the discount floor is reached, liquidation is almost impossible, and the PT collateral value is always above the liquidation threshold。

By fully hedging USDe and its derivatives to be equivalent to USDT, Aave has facilitated a radical leverage rotation。 However, Devens emphasizes that both rotators and the protocol need to bear respective risks。 Asset supply ceilings are quickly filled frequently, especially as USDC supply increasingly relies on PT-USDe collateral。 In this structure, USDC acts as a senior tranche, with holders benefiting from increased interest rates due to high utilization, and risk only being exposed in the event of defaults。

Chapter 5: Ecosystem Impact and Outlook

The scalability of future strategies depends on whether Aave continues to increase collateral ceilings。 The risk team has proposed increasing the ceiling multiple times, with the most recent proposal being for $1.1 billion。 However, the policy restricts each increment from being more than twice the previous one and requires a three-day interval。

The benefits to ecosystem participants are clear: Pendle charges a 5% fee on YT, Aave receives a 10% reserve fee from USDC lending interest, and Ethena plans to extract approximately a 10% share after activating the fee switch。 Devens concludes that Aave, through hedging with USDT and setting a discount cap, has provided a highly profitable opportunity for Pendle's PT-USDe leverage rotation strategy。 However, the increased leverage also exacerbates the systemic risk among Aave, Pendle, and Ethena, requiring ongoing monitoring。