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Is Ethena the New Darling of DeFi? AAVE’s Dismal Dilemma Unveiled!

BBG News
  • Ah, the audacious Ethena PT, luring DeFi capital with promises of higher yields, has taken it upon itself to challenge the venerable Aave’s lending model. How quaint!
  • Meanwhile, AAVE prices are exhibiting a rather pitiful display of weakness, as their once-bullish momentum fades faster than a summer tan.

In a remarkable feat of financial gymnastics, Ethena [ENA] Principal Tokens (PT)—the latest marvel from the wizards at Ethena Labs—have galloped past the $1 billion mark in collateralized supply in a mere month. Bravo!

This meteoric rise follows the assets being graciously accepted as collateral on Aave, a move that has opened the floodgates for Ethena’s synthetic stablecoin ecosystem. Users can now leverage their PT holdings in DeFi’s grandest lending market, as if it were a game of Monopoly.

For those blissfully unaware, PTs are backed by delta-neutral tactics that yield a staggering 15–25% on sUSDe. In a world starved for yield, these tokens are the equivalent of a gourmet meal in a fast-food wasteland.

Aave’s interest rates on borrowings are still decreasing

In a rather unfortunate twist, Aave [AAVE] has been witnessing a steady decline in its borrowing rates. Most stablecoin borrow rates now languish between 2–4%, hardly the siren song for lenders in search of high returns.

This decline may well reflect a broader malaise—a dwindling demand for on-chain leverage and an excess of capital that has nowhere to go but down.

Indeed, Ethena’s growth might be hastening this trend. Rather than parking their assets in Aave’s once-coveted lending pools, capital is now flocking to sUSDe, seduced by its superior yield performance. How the mighty have fallen!

Is Ethena draining Aave’s capital pool?

The timing is positively ripe for a realignment of capital, as Ethena PT supply soars above $1 billion in just a month. Meanwhile, Aave’s native protocol gauges are pointing towards stagnation, like a once-bustling café now devoid of patrons.

Lower borrowing demand suggests a bleak future for protocol revenue and a diminishing value for the AAVE token. This divergence is as threatening as a cat in a room full of rocking chairs, with Ethena’s high yields siphoning liquidity from the legacy protocols like Aave.

If this trend persists, Aave may find itself struggling to maintain its market share, particularly in the absence of any major innovation or an increase in borrowing utility. A tragedy, really!

AAVE price consolidates under pressure

On the daily chart, AAVE is consolidating beneath the $270 resistance mark, its earlier bullish trend now flattened like a pancake. The price action is stuck in a clear supply zone, much like a guest at a party who has overstayed their welcome.

While this could merely reflect a moment of indecision, it might also indicate weakening fundamentals tied to Aave’s dwindling borrowing activity. A rather dismal prospect, wouldn’t you agree?

Unless borrowing metrics experience a miraculous recovery, investor sentiment surrounding AAVE is likely to remain as cautious as a cat near a dog park.

As the yield competition in DeFi heats up, mere protocol maturity will not suffice—Aave may require a new catalyst to remain competitive. A tall order, indeed!

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2025-05-29 05:17

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