Ethena’s $1B Growth Poses Challenges for AAVE as Borrowing Demand Declines

Ethena’s recent spike in collateralized supply raises significant questions about Aave’s borrowing demand and the potential impact on AAVE’s future performance.

• Ethena PT’s appeal is drawing DeFi capital due to its remarkable yields, directly challenging Aave’s traditional lending model.

• Signs of weakness in AAVE prices indicate a fading bullish momentum amidst rising competition.

Ethena [ENA] Principal Tokens (PT), part of Ethena Labs’ innovative yield-bearing stablecoin system, have surpassed $1 billion in collateralized supply in just one month. This impressive growth aligns with their recent approval as collateral on Aave, effectively enhancing Ethena’s utility within the DeFi lending landscape.

For those unfamiliar, PTs capitalize on delta-neutral strategies yielding substantial real returns, usually between 15–25% on sUSDe. In a climate where conventional DeFi lending rates remain low, these offerings have emerged as highly attractive options for yield-seeking investors.

Aave’s Declining Borrowing Rates: A Concerning Trend

In stark contrast, Aave has experienced a consistent decline in its borrowing interest rates. Currently, stablecoin borrowing rates hover between 2–4%, which is less appealing for lenders aiming for higher returns.

This downturn might signify a broader trend: dwindling demand for on-chain leverage and saturation of capital in the market. Interestingly, Ethena’s rapid growth could be accelerating this trend, as the capital is increasingly redirected towards sUSDe rather than resting within Aave’s lending pools.

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