Overview

As animal spirits return to a vertical crypto market, demand for leverage has increased notably. For BTC and ETH, aggregated open interest and funding rates have reached multi-month highs.

A primary beneficiary of this growth in OI and funding rates is Ethena, whose sUSDe synthetic dollar captures the elevated funding rate and returns that yield to token holders. With this surge in funding rates, sUSDe yields rose from ~4% in August towards ~27% today, a compelling premium to a falling risk-free rate of ~4.5%.

Source: Ethena.fi

With this attractive carry, new deposits in Ethena have sent the USDe supply to new highs of over 5.6B, growing over 100% since October. Notably, the USDe supply has now flipped that of DAI/USDS at 5.2B. Currently, about 3.8B, or 66% of the USDe supply, is staked as the reward-bearing token, sUSDe.

As USDe supply has skyrocketed, two protocols have been primary beneficiaries of this growth: Pendle and Aave. Combined, sUSDe deposits on these two protocols have eclipsed 2.8B, accounting for 75% of the circulating sUSDe supply. 

With elevated demand for leverage, the balances of stablecoins borrowed from onchain money markets have reached new highs, maxing out the available utilization. This surge in demand has increased yields for stablecoin suppliers, offering attractive risk premiums in excess of 15% for onchain secured stablecoin lending. At large, the current market conditions offer elevated and compelling returns on certain stablecoin positions. As demand for leverage and the returns on stablecoins have increased, the aggregate stablecoin supply has grown to a new all-time high of over $200B. Elevated risk premiums on stablecoins create a compelling context for continued growth in the stablecoin supply, with a number of key applications positioned well to capitalize on these conditions.

Pendle

Pendle’s core product allows for speculation on the yield associated with yield-bearing instruments across dated maturities. By allowing market participants to lock in a fixed yield on an underlying with a variable yield, Pendle’s product can dramatically derisk the utilization of the underlying instrument. For a more thorough introduction to the mechanics of Pendle’s instruments, please review our prior research here. With the ability to hedge out variance in the instrument’s carry, Pendle and sUSDe are a match made in heaven, and sUSDe has been a killer listing for the protocol.

This is evident in the growth of sUSDe on Pendle. As the total USDe supply grew from 2.4B in October to 5.6B now, USDe-denominated open interest on Pendle grew from ~600M to over 2.2B in the same period. Pendle has effectively captured 50% of the growth in the USDe supply.

Dated maturities on Pendle allow market participants to price the expected or implied yield on sUSDe forward in time. With multiple markets pricing the underlying instrument’s yield across different maturities, a forward curve can provide insights on the expected yield of the instrument forward in time. Pendle’s sUSDe principal tokens (PTs) offer attractive instruments for fixed-yield exposure to the currently elevated sUSDe yields. Currently, the forward curve on Pendle’s sUSDe markets is in backwardation, with the front month market (i.e., nearest expiration date) pricing a higher fixed yield than longer-dated maturities, suggesting that market participants expect the underlying sUSDe yield to fall over the coming months. To note, the fixed yield on the front-month sUSDe PT is priced at 32.5% APY, a premium to the underlying carry of 22.5%. This is true across the curve, where fixed yields on PT are pricing a premium to the underlying yield. Should the underlying carry on sUSDe fall over the coming months, this suggests PT exposure is undervalued relative to spot sUSDe exposure. 

An important consideration is that Ethena has been running a 25-50x sats/points campaign on Pendle markets, which may ultimately convert to a subsequent airdrop. sUSDe yield token (YT) holders earn these points, while PT holders forgo them. While it is indeterminate to what extent these sats will convert to $ENA, this incentive campaign could justify why YT is expensive and PT is cheap relative to the underlying carry. 

While aggregate open interest on Pendle remains beneath its June 2024 high of $7B, volumes on the Pendle DEX have consistently made new highs on a month-over-month basis, evidence of growing activity and utilization of the protocol.

Usual 

The Usual Dollar (USD0) stablecoin functions as a liquid deposit token collateralized by tokenized short-term T-bills. Currently, Hashnote is the only collateral provider for the Usual protocol through USYC, a tokenized representation of the Hashnote International Short Duration Yield Fund. The fund holds primarily short-dated reverse repurchase agreements and T-bills. Net of fees, the underlying carry on USYC is 3.8% APY. Usual recently announced support for USDtb and BUIDL as eligible collateral, expanding the addressable base of deposits, with plans to eventually expand to additional collateral providers like Ondo and Mountain Protocol. Usual is one of the fastest-growing stablecoins and holds 96% of the USYC supply as underlying collateral.

While USD0 is collateralized by yield-bearing assets, the stablecoin does not accrue the underlying yield. Instead, USD0 can be staked as the USD0++, a liquid bond token where the underlying deposits remain locked for a period of 4 years. USD0++ holders continuously accrue yield in the form of USUAL token emissions, the governance and equity token of the protocol. The USUAL token carries ownership of 100% of protocol revenues, which are generated primarily through the underlying deposits’ yield. Currently, about 87% of the USD0 supply is staked as the USD0++ liquid bond. USD0++ can be double-locked for a rolling 6-month window to accrue the underlying deposit yield through the Base Interest Guarantee, paid in USD0. 

USUAL tokens are emitted to USD0++ holders at a supply rate that is inverse to the total deposits in the protocol. As deposits grow, thus increasing the protocol’s forward revenues, USUAL token emissions will decrease. By emitting equity tokens to USD0 stablecoin holders who lock their deposits with USD0++, coupled with returning the underlying deposits’ yield to USUAL holders, Usual is effectively performing a vampire attack on Circle’s equity. On $850M in yield-bearing deposits, this projects to an annualized revenue of $34M. Usual has consistently generated increasing revenues, as shown in the chart below.

The USUAL token generation event occurred on December 18th with a market capitalization of ~$254M and a ~$3.3B FDV. Over the past month, pre-launch markets for the USUAL token have traded 300% higher.

With this growth, the implied yield to USD0++ holders through the airdrop and future emissions has increased notably. Usual has found good success with an integration with Pendle, with now over 37% of the USD0++ supply on Pendle across 5 maturities. This integration allows market participants to price and speculate on the value of USUAL emissions and airdrops associated with a USD0++ position.

In an interesting contrast to the sUSDe markets, the forward curve on USD0++ PT APY is pricing a discount to the underlying implied yield. This suggests that prevailing flows by market participants are overweight PT, forgoing exposure to the USUAL airdrop and future token emissions and receiving a fixed yield of 22-34% APY, depending on the maturity. To note, this fixed yield carries an attractive premium to the underlying deposits’ yield of ~3.8%.

While 22-34% fixed is an attractive APY on USD0++ PT, the current market pricing suggests USD0++ YT could be undervalued relative to the underlying implied yield of 54%. As such, USD0++ YT could be an effective instrument to get discounted and convex exposure to the USUAL token. Given that the entirety of the yield on USD0++ is financed through USUAL token emissions and the airdrop, USD0++ YT exposure carries large risks associated with the market price of the token. 

While Usual remains a relatively new stablecoin protocol, and the market value of the USUAL token can remain highly volatile post-TGE, the current market pricing suggests USUAL remains undervalued against a comparison like Ondo. 

	TVL	Forward Projected Annual Revenue	FDV	FDV/ Revenues
Usual	$850M	~$35M	$3.38B	97
Ondo	$621M	~$1M	$18.85B	18850

Usual Protocol captures the majority of yield generated by deposits, while Ondo only captures 15 bps. Additionally, deposits on Usual have outpaced those on Ondo, suggesting a more optimistic trend in growth. In aggregate, evaluating the two protocols on an FDV/ Revenue basis, this suggests that Usual is currently trading at a >99% discount to Ondo. 

Money Markets

Aave

Aave, the largest onchain money market, is a primary beneficiary of the growing stablecoin supply, demonstrated by the notable growth in the absolute level of stablecoin deposits in the protocol when compared to competitors. 

Source: Blockworks Research

On Aave’s markets, aggregate stablecoin deposits and borrows are at all-time highs, with stablecoin utilization rates reaching 90%. In response to this, the DAO has incrementally increased supply and borrow caps on a number of stablecoin assets to accommodate this surge in demand. 

Source: Blockworks Research

Second to Pendle, Aave has been a primary beneficiary of sUSDe growth, amassing 1B in deposits in under 1 month. This new market allows users to supply sUSDe as collateral, earning the attractive elevated yield, while borrowing against this collateral at a much lower cost of capital.

The Aave-Chan Initiative recently introduced a Temp Check in the Aave governance forum, proposing to list Pendle’s sUSDe PT for the 29th of May 2025 expiration as accepted collateral. This new market would allow depositors to borrow against a fixed-yielding collateral, rather than the variable yield paid on sUSDe currently, and represents growing synergies and composability across Ethena, Pendle, and Aave. 

With elevated demand to borrow from Aave, yields to stablecoin suppliers have increased notably. As evidenced in the chart below of the USDC supply APR on Aave, yields have reached multi-month highs, eclipsing 15%. 

USDC Supply APR on Aave:Source: Aave

At large, the current market conditions are a highly favorable context for Aave, as the protocol generates revenue from a take rate on elevated APR’s on a growing base of deposits and borrows. This is reflected in Aave’s weekly revenue data, with revenue generation at an all-time high run rate.

Kamino

Kamino, the largest money market on Solana, is showing strong growth in its fundamentals under current market conditions. In November, with total deposits and borrows at all-time highs, Kamino generated a new all-time high in monthly revenue of ~$3M.

The balances of USDC supplied on both the Main Market and JLP Market are at all-time highs, with a combined balance of ~$390M in USDC. APY’s to stablecoin suppliers have reached new highs, eclipsing 20%.

USDC on Kamino’s JLP Market:

Source: Kamino Finance

USDC on Kamino’s Main Market:

Source: Kamino Finance

Additionally, Sky has been running an incentive program to attract USDS liquidity on Solana, with SKY token emissions to USDS suppliers on Kamino. A USDS supply position on Kamino has been paying out ~10% APY from lending, and ~11.5% APY from SKY incentives, for a combined APY of ~22%. The incentive program has successfully attracted ~50M in USDS deposits on Kamino.

USDS on Kamino’s Main Market:

Source: Kamino Finance

While returns on stablecoin supply positions are elevated, a more risk-seeking strategy to capitalize on the current market’s demand for leverage could involve a JLP Multiply position on Kamino. The JLP position supplies liquidity to Jupiter’s perpetual futures market and collects the fees and funding rates from traders. Kamino, through the Multiply product, allows users to borrow USDC against a JLP position and loop this position for leveraged exposure to the JLP carry. Unlike a stablecoin supply position, this strategy carries risks associated with the value of  the assets in the pool, liquidations, and elevated borrow rates that could close the spread on the carry trade.

Source: Kamino Finance

Risks

Current stablecoin yields are a function of market conditions and demand for leverage. As the TOTAL crypto index has traded over 60% higher since the start of November, market participants have been willing to pay elevated borrow and funding rates for additional exposure. Should returns on spot assets falter or deteriorate, much of this leveraged positioning could become unprofitable and unwind, reducing borrow demand and, in turn, yields for stablecoin suppliers and sUSDe holders. In tandem, should sUSDe yields fall notably against the USDC borrow rates on money markets, this could lead to an unwind in the leveraged looping carry trade. Additionally, a large increase in the aggregate stablecoin supply, with some percentage of this being supplied on money markets, could drive down yields for stablecoin suppliers on money markets. 

As with all stablecoins, but perhaps sUSDe in particular, holders carry depeg risk. The consequences of a depeg are multiplied with recursive leverage, which is currently a popular strategy for sUSDe on these money markets. As such, leveraged looping strategies carry risks of liquidation penalties, and money markets carry risk of the incurrence of bad debt in the event a stablecoin depeg. A comprehensive exploration of the risks of sUSDe in particular is discussed in more depth in this Ethena report.

For Pendle, much of the recent growth in open interest is attributable to sUSDe. Should funding rates decline, and in turn the APY for sUSDe, there would be a diminishing incentive for holding deposits on Pendle in future maturities. Additionally, as many of Pendle’s listed assets come with expected airdrops or token emissions, open interest for these markets could fall notably as airdrop windows close and these markets come to maturity. 

Conclusion

Under current market conditions, stablecoins are paying compelling risk premiums multiples higher than the risk-free rate. Elevated premiums present a highly positive context for continued growth in the aggregate stablecoin supply and new inflows coming into the market to capture this elevated carry. Onchain money markets stand as primary beneficiaries of these market conditions and a forward outlook of a growing stablecoin supply. Similarly, Pendle’s PTs across a number of assets can provide attractive instruments to hedge variance and lock in a compelling fixed yield. 

*The information contained in this report and by Blockworks Inc. and related affiliates is for general informational purposes only and is not intended to provide legal, financial, or investment advice. The report should not be construed as an offer or solicitation to buy or sell any security, token, or financial instrument and does not represent any recommendation or endorsement of any investment or financial product or service. Blockworks Inc. and related affiliates are not registered as a securities broker-dealer or an investment advisor in any jurisdiction or country. *