MakerDAO pools on Morpho enable looping on Ethena’s yields
On Contango you can now loop sUSDe and USDe against DAI, via MorphoBlue markets.
MakerDAO is pouring $100M in DAI liquidity into new MorphoBlue vaults, where USDe and sUSDe, the popular stablecoin assets from Ethena, can be borrowed at a high loan-to-value ratio. This deployment will allow for large amounts of liquidity at scale, enabling an expected ~10x leverage on the famous sUSDe yield (between 30% and 60%).
Background
This liquidity injection from MakerDAO will happen via SparkLend, a subDAO of MakerDAO, and is part of MakerDAO’s “endgame plan”, a proposal to improve the governance and tokenomics of the Maker Ecosystem. Funds will be transferred around 14:00 UTC on March 29th, after a successful vote from MakerDAO’s governance (source).
MorphoBlue is a permissionless lending market that allows for the creation of custom vaults. By providing liquidity on its vaults, MakerDAO will create an additional source of revenue for its ecosystem (source).
The perfect catalyst for Maker’s plan is Ethena, a protocol that created a new stablecoin, USDe, backed by derivative positions. Ethena has already attracted $1.3B in TVL and received investments from many leaders in the space, including Arthur Hayes. Ethena also offers a staked version, sUSDe, which is a bearing token and earns stakers a native yield, which recently ranged between 30% and 60%.
So, thanks to this newly added liquidity in USDe/DAI and sUSDe/DAI vaults on MorphoBlue, DeFi users can benefit from the rate differential. If, for instance, borrowing DAI is cheaper than the bearing rate of sUSDe, they can earn money. Borrowing DAI by pledging sUSDe as collateral also enables users to receive points (shards) from Ethena. Since USDCe is not a bearing asset, the USDe/DAI pool will receive a higher amount of shards.
Consequences for DeFi users
Defi users have high expectations on this liquidity injection, as it will enable a ~10x leverage via MorphoBlue. Accessing these high yields and farming Ethena points on leverage is possible through a process called looping.
Looping allows users to gain leveraged exposure to an asset through, lending and borrowing recursively on a lending market. However, since this is often a time-consuming, gas-intensive and manual process, current gas fees on mainnet make these trades unavailable to most users.
An alternative is using flash loans, a mechanism perfected by platforms like Contango, a trading platform built on top of multiple lending markets that is the missing piece of the puzzle to these new DeFi trades. On Contango, leveraging USDe/DAI or sUSDe/DAI is a straightforward process that happens via flash loans under the hood. DeFi users can find in Contango the necessary front-end to perform the above mentioned trades in a more user-friendly manner that saves gas and time.
About Contango
Contango lets you loop anything on-chain. You can create leverage (re)staking positions, arb rates differentials, farm points, or simply go long or short like a perp at low funding. Ape in like a degen with 1-click Strategies, or trade like a pro on the sleek Trade interface.
