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How quickly will tokenized TBills eat into tokenized cash's market?

Updated: May 17

The biggest tokenization narrative of 2023-24 so far can be summarized in the following 3 stories about stablecoins and yieldcoins (TBills backed cash equivalents):

The conversations on tokenization I have often end up with the question, “how quickly can yieldcoins eat into stabelcoin’s market share?”

Judging by the +50% AUM growth from the yieldcoin category leaders, BlackRock, Ondo and Franklin Templeton, since Feb 2024, the answer looks to be pretty quickly.

But even that could be underestimating the demand for USD denominated store of value and payment options that can offer yield. 

Why? Well look at the market demand numbers for the synthetic dollar with yield.

Enter Ethena - the synthetic dollar product with 15% yield and a growth trajectory that would put even the Big Three of the yieldcoin category to shame.

Here is the comparison between these 3 product categories.

  • It took Tether the largest and first stablecoin issuer 3 years to reach $2 billion 

  • It took BlackRock, Ondo and Franklin Templeton 1 year to get to reach $1 billion 

  • It took Ethena 4 months to go from 0 to $2 billion

Despite its risky appearance and actual risk profile, Ethena somehow got Brevan Howard and Franklin Templeton onboarded as investors in its latest $14million round. 

So why did savvy traders like Brevan Howard as well as traditional asset manager Franklin Templeton both invest? 

This will be the first part of a two-part series of Subscriber-exclusive content covering this project’s focus on disrupting the onchain dollar market. In the first part, I will unpack the mechanisms and numbers behind Ethena’s:

  • Product components

  • Main risk factors

  • Growth trajectory

In the second part of the series, to be published next week, I will cover other risk factors and various demand drivers to form a view on its possible future growth.

I am a firm believer that the traction record of cash/cash-like products with yields demonstrates a clear demand and a sizable opportunity for capital efficient cash-equivalent products onchain.

Let’s dig in.

Ethena the product - What the heck is Ethena?

Dubbed as “synthetic dollar”, according to its website, Ethena is a crypto-native solution for money not reliant on traditional banking system infrastructure, alongside a globally accessible dollar denominated instrument aka the Internet Bond.

Pretty grandiose/ambitious market positioning depending on your perspective. 

Yet its growth since launch this year has been meteoric to say the least. Offering a return that usually ranged between 15%-20%, far exceeding that of US Treasury Bill backed yield, it has gone further in 4 months than the entire tokenized TBills category has done in a year. Below is its growth chart.

And what is USDe?

Ethena's synthetic dollar, USDe, is backed by delta-hedged Ethereum and Bitcoin collateral positions consisting of long spot legs and short derivatives legs. In traditional finance, this is commonly referred to as the basis trade.

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