Ethena Expands Ecosystem with Converge L2 and GENIUS Act-Compliant Stablecoin Amid USDe Growth

Executive Summary

Ethena Labs is significantly expanding its ecosystem beyond its USDe synthetic dollar, which has rapidly ascended to become a top DeFi revenue generator. The company is developing its own Layer 2 blockchain, Converge, in partnership with Securitize, alongside the introduction of USDtb, a new stablecoin designed for compliance with the U.S. GENIUS Act. This multi-faceted expansion aims to bridge traditional finance (TradFi) with decentralized finance (DeFi) by offering institutional-grade infrastructure and regulated financial products, while USDe's market capitalization has grown to over $14 billion.

The Event in Detail

USDe, Ethena's synthetic dollar, has seen its market capitalization exceed $14 billion, marking a 21% increase in circulating supply over the past month. This growth positions USDe as the third-largest stablecoin by market capitalization, behind Tether (USDT) and USD Coin (USDC). Unlike traditional fiat-backed tokens, USDe is collateralized by crypto assets and maintains its peg through a delta-neutral hedging strategy utilizing perpetual futures markets and spot trading. Ethena Labs recently partnered with Flowdesk to enhance liquidity and access for its stablecoin products.

In a strategic move to attract institutional capital, Ethena Labs, in collaboration with Securitize, is developing Converge, a high-performance EVM-compatible Layer 2 blockchain. Converge is designed for institutional DeFi accessibility and compliant settlement, aiming to launch its mainnet in Q2 2025. Key technical specifications include a target 100ms block time, scaling to 50ms by Q4 2025, and throughput up to 1Gigagas/s, leveraging Arbitrum's Rollup technology and Celestia's data availability layer. Converge will utilize USDe and USDtb for gas fees, reducing volatility-related uncertainty in transaction costs. The network will feature a permissioned Proof-of-Stake (PoS) validator network (CVN) requiring KYC/KYB compliance, secured by ENA token staking.

Further reinforcing its commitment to regulatory alignment, Ethena Labs has partnered with Anchorage Digital to launch USDtb. This stablecoin is explicitly designed to comply with the GENIUS Act, which was enacted in July 2025. The GENIUS Act mandates 1:1 reserves, AML/KYC procedures, and exposes issuers to supervision by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve. USDtb will be backed by low-risk reserves such as cash and U.S. Treasuries, with a planned launch under U.S. regulation by the end of Q3 2025. This initiative represents a significant step towards establishing a regulated standard for U.S. stablecoins.

Market Implications

Ethena's ecosystem expansion carries substantial market implications. USDe's model tokenizes a delta-neutral carry trade, generating yield from ETH staking rewards and derivatives market funding rates. This positions USDe as a significant "crypto-native reserve asset." However, the strategy is not without risks. Chaos Labs has flagged liquidity risks associated with the rehypothecation of $4.7 billion of USDe's reserves on Aave. The report highlights that Aave's $6.4 billion Ethena-linked exposure could trigger redemptions if funding rates turn negative, potentially leading to cascading liquidations or de-pegging events for USDe.

The Converge Layer 2 aims to attract institutional adoption for tokenized assets, fostering a bridge between TradFi and DeFi. Its permissioned validator model and KYC/KYB requirements address stringent institutional demands for security and compliance. However, this design also introduces centralization concerns for some within the crypto community and creates dependency on external technical stacks like Arbitrum and Celestia. The success of Converge hinges on its ability to align with evolving regulatory frameworks and foster robust ecosystem growth.

The introduction of USDtb under the GENIUS Act framework is a pivotal development for the U.S. stablecoin market. While the GENIUS Act bans yield on regulated stablecoins, it provides clear regulatory clarity that can accelerate institutional participation. This regulatory landscape could indirectly boost USDe's appeal by differentiating its yield-bearing nature from regulated non-yielding alternatives. The partnership with federally regulated entities like Anchorage Digital allows Ethena to access traditional financial rails, potentially expanding the reach of its products to a broader institutional investor base.

Expert Commentary

Industry experts acknowledge the dual nature of Ethena's trajectory. OAK Research characterizes the market sentiment as "Bullish to Highly Volatile," noting strong growth potential alongside inherent risks from leveraged strategies and nascent Layer 2s. Nathan McCauley, CEO and co-founder of Anchorage Digital, emphasized that the passage of the GENIUS Act provides "the regulatory clarity that enables federally regulated institutions like Anchorage Digital Bank to fully participate in the stablecoin ecosystem." Guy Young, CEO of Ethena Labs, stated that "GENIUS compliance will empower our partners and holders to confidently and significantly expand USDtb's use," underscoring the strategic importance of regulatory adherence for scalability. Franklin Templeton CEO Jenny Johnson has also previously highlighted that a clear regulatory framework will promote the integration of TradFi and DeFi, aligning with Converge's design principles.

Broader Context

The Ethena ecosystem is attracting a wide array of DeFi protocols building on its primitives and offering incentives to ENA stakers. These include Ethereal, Strata, Terminal, Derive Protocol, Echelon, InfiniFi, Aave, Pendle, Contango, Plasma, and Hyperliquid. Staked ENA (sENA) is designed to accrue value similar to the BNB token model, with ecosystem applications allocating portions of their token supply to sENA holders. The integration of generalized restaking pools with Symbiotic for staked $ENA aims to provide economic security for cross-chain transfers of USDe via LayerZero.

This broad integration positions Ethena to become a foundational layer for both institutional and retail DeFi. The Converge L2 has the potential to attract substantial total value locked (TVL) and developer activity, fostering new use cases and financial products. However, the complex "looping" strategies and deep integrations, while driving adoption, also amplify systemic risks if market conditions shift rapidly. Ethena's long-term stability and success will depend on its ability to manage these risks, particularly the reliance on sustained derivatives yields and regulatory flexibility, while navigating the inherent volatility of the crypto market.