- Ethena proposes to add SOL as a backing asset for USDe, leveraging its current hedging mechanism for BTC and ETH futures.
- BNSOL (Binance Liquid Staked SOL) and bbSOL (Bybit Liquid Staked SOL) are also proposed as additional backing assets.
- Solana now holds 35% of the Web3 market, closing in on Ethereum’s 45% dominance.
The Ethena community has initiated a proposal to integrate Solana’s native token, SOL, as a backing asset for USDe. This is an addition to the current hedging mechanism at Ethena for Bitcoin and Ethereum perpetual futures.
The proposition intends to extend Ethena’s hedging strategy by matching up with one of the fastest-growing ecosystems in the crypto space: Solana. However, the inclusion of SOL’s backing would be implemented on a gradual basis due to its relatively short trading history and less liquidity compared to BTC and ETH.
The proposal indicates that SOL brings about $2 billion of open interest across the major venues; hence, this is an attractive opportunity to increase revenue for Ethena through favorable funding conditions.
Liquid Staked SOL Tokens Added to the Mix
The proposal would add liquid staked SOL tokens, including BNSOL and bbSOL, to the SOL allocation-specifically, an equivalent setup to how ETH liquid staking tokens form part of Ethena’s ETH allocation.
Meanwhile, the SOL LSTs are capped at one-third of the total SOL allocation. If approved, the expansion can unlock $2-3 billion in open interest, which may help scale Ethena’s USDe from the current supply of $2.5 billion to meet demand.
Ethena’s Risk Committee is expected to vote in the upcoming seven days on making the integration of SOL and its staked variants live. Voting for the same will have to be unanimous for moving forward. If this is approved, as seen with BTC and ETH, the proposal may make Ethena command 5-10% of SOL’s open interest.
Integrating SOL will increase Ethena’s market and enhance profitability, hence improving the position of USDe in the crypto ecosystem. The strategy adopted by Ethena underlines the rising importance of Solana, which is competing with Ethereum on the grounds of speed, scalability, and lower costs.
Solana Gains Ground in Web3 Dominance
Powered by its unique Proof of History algorithm, Solana offers low latency and cost-efficient transactions, making it an attractive alternative to Ethereum. This scalability has enabled Solana to capture a large market share in Web3 due to its growing popularity among developers and users.
Indeed, recent figures show that Solana currently controls 35% of the Web3 market, putting it a mere 10% behind Ethereum’s leading 45%. In the previous quarter, Solana topped all L1 chains by having a net inflow of $1 billion in bridged assets.
This kind of growth just serves to underscore the rising tide of clout for Solana, now well-positioned to be a major competitor which could compete with the longtime stranglehold Ethereum has maintained on the Web3 space.
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