Ethena Labs plans to integrate Solana (SOL) into its yield protocol, expanding its collateral options for the USDe stablecoin.
Currently, the protocol only accepts Bitcoin (BTC) and Ethereum (ETH) as collateral using delta hedging. If passed, this proposal will be a big step forward for Ethena and the Solana ecosystem.
By introducing SOL as a collateral option, Ethena wants to increase its offering and attract more depositors.
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The minimum allocation of $100 to 200 million in SOL is then targeted to govern 5 to 10% of the asset’s open interest on the futures market. This fits Ethena’s approach, which is 3% BTC, ETH, and 9% of its collateral pool.
Ethena also considers using liquid staking tokens like BNSOL and bbSOL as collateral. This would match how the protocol handles ETH liquid staking tokens, which comprise one-third of the platform’s ETH allocation. The total notional value of the collateral pool is $2.44 billion, and the APY is 1.91%.
Solana Integration with Ethena to Boost DeFi
This integration of Solana into Ethena could boost the decentralized finance ecosystem on Solana. With total value locked (TVL) currently about $6 billion, Solana is now third of all blockchains.
If approved, Solana could help give SOL holders increased utility by increasing liquidity in the token and adding more capital to Solana’s DeFi protocols.
At a crucial time for Solana, Ethena’s proposal comes as the network has turned the corner. This marks it’s emergence from the shadow of the FTX collapse in late 2022.
Its growth is facilitated by successful protocols such as Jito, Jupiter, Marinade, and Solana’s DeFi Ecosystem booms. Then, adding SOL as a collateral option on Ethena would strengthen its standing in the DeFi market.
There are concerns about volatility with the price of SOL, but supporters contend that the integration will bring new growth for Ethena and Solana. Both Ethena’s synthetic stablecoin USDe and SOL have volatility associated with them.
Still, Ethena has a synthetic stablecoin that will be actively hedged, which would reduce some risk compared to the SOL’s volatility. As a result, TVL for Ethena could see a boost to what now stands at $2.4 billion after sharply dropping from $3.6 billion and significantly surpassing a lower figure of $1.5 billion.
Solana Collateral Could Strengthen Ethena’s Growth
Ethena’s expansion to Solana may resurrect the protocol to test its strength against the onslaught of competitive stablecoins. The capitalization of USDe amounts to $2.6 billion today, making USDe the fifth-largest stablecoin in the market. USDe has 12,600 holders and attempts to keep its peg by shorting 1x its collateral deposits.
Ethena Labs has put $46 million in USDe aside to tokenize real-world assets as partners, including BlackRock and Mountain.
Ethena’s larger vision is to bridge digital assets to traditional finance, which this move symbolizes. If SOL were to become collateral, it could add to these efforts and help make USDe more available to more users and investors.
Community governance is the key to the success of the proposal; a unanimous vote is needed to approve it.
Whatever happens, Ethena will be stronger in the DeFi space if it is passed, with more liquidity coming in and the TVL growing. Additionally, if this were to occur, the stablecoin could be reinvigorated as a significant player in DeFi’s emerging ecosystem.
