In a move that broadens its collateral framework, Compound Finance has added Ethena’s yield-bearing stablecoin USDe and Mantle’s liquid staking token mETH to its decentralized lending and borrowing platform. The update followed a governance vote by Compound’s tokenholders on January 8. Mantle confirmed the integration and indicated that discussions are underway to bring cmETH, Mantle’s liquid restaking token, into the protocol. The development underscores a growing trend toward diversified collateral options in DeFi and reflects the accelerating adoption of Ether-based LSTs and yield-bearing stablecoins across major lending ecosystems.
Expanded collateral options on Compound: USDe and mETH
Compound Finance, long recognized as one of Ethereum’s most prominent DeFi lending protocols, is expanding its collateral universe by welcoming Ethena’s stablecoin USDe and Mantle’s liquid staking token mETH. The governance vote on January 8 enabled USDe and mETH to be used as lending collateral, enabling borrowers to leverage these assets within Compound’s lending and borrowing framework. This move is perceived as a strategic step to diversify collateral and to tap into the growing appetite among users for yield-oriented assets that can be deployed across multiple protocols. The addition of USDe, Ethena’s stablecoin that aims to offer high yields in a stable asset, broadens the risk and return profile available to lenders on Compound. Similarly, mETH—the LST issued by Mantle—introduces a new mechanism for staking-derived liquidity to be used as collateral, potentially enabling more flexible borrowing against staked Ether positions.
The integration is also accompanied by ongoing considerations to incorporate cmETH, Mantle’s liquid restaking token (LRT), into Compound’s ecosystem. This indicates a broader narrative where DeFi users seek to maximize yield from staked assets by enabling restaking workflows to contribute to borrowing power across multiple platforms. By embracing cmETH’s restaking concepts, Compound signals a willingness to experiment with cross-protocol token dynamics that can enhance yield opportunities for liquidity providers and borrowers alike, while also introducing new risk vectors that governance participants will need to monitor over time.
Compound already stands as a cornerstone in the Ethereum DeFi landscape, boasting a substantial total value locked (TVL) that places it among the network’s most popular lending protocols. Industry data show that Compound’s TVL sits within the multi-billion-dollar tier, reflecting persistent user trust in its borrowing and lending capabilities. The latest expansion aligns with a broader market movement toward integrating yield-bearing instruments and restaked assets into mainstream DeFi protocols, allowing users to optimize collateral efficiency and capital utilization. The move is framed as part of a multi-year trend where stablecoins designed to deliver high yields and LSTs that unlock staking-derived liquidity are increasingly integral to DeFi portfolios and risk management strategies.
From a governance and user experience perspective, the decision to add USDe and mETH represents a straightforward pathway to expand the borrowing power of existing users who hold or earn these assets elsewhere in the ecosystem. By enabling these tokens as collateral, Compound broadens the potential of its users to access liquidity without liquidating positions or reallocating assets across multiple platforms. This development is also likely to influence borrowing costs, collateralization ratios, and liquidity dynamics within Compound’s markets, potentially shifting user behavior toward broader deployment of LSTs and high-yield stablecoins across DeFi protocols.
Beyond the immediate changes, the possibility of adopting cmETH suggests that Compound’s governance and product teams are evaluating the feasibility and risk-reward balance of integrating LRTs into collateral sets. cmETH, as a restaked derivative, could offer additional yield opportunities while maintaining exposure to staked Ether. The successful integration of cmETH would signal stronger cross-protocol collaboration and could catalyze further cross-chain or cross-protocol restaking strategies across major DeFi ecosystems. For users, this means more options to optimize yield while participating in a diversified collateral framework, though it also raises complexity around asset risk, slippage, and cross-protocol staking dynamics that require careful governance oversight and transparent risk disclosures.
From a market perspective, the inclusion of USDe and mETH reinforces the ongoing push toward yield-oriented collateral within DeFi lending. Stablecoins like USDe represent a way to combine stability with significant yield potential, appealing to liquidity providers and borrowers seeking a more predictable risk profile relative to highly volatile assets. Meanwhile, mETH introduces exposure to both staking rewards and liquidity opportunities, creating a compelling incentive for users who want to harness staking-derived yields without sacrificing borrowing capacity. The combined effect of these changes is expected to influence borrowing appetite, collateral demand, and the composition of assets in Compound’s lending markets over the coming quarters.
The broader implication for the DeFi landscape is a reinforcement of the idea that collateral can and should be more than merely a hedge against price movements. With USDe’s stability and the yield mechanics of mETH, users gain avenues to harvest yields in a way that complements their staking strategies. The governance-driven expansion also signals that major DeFi protocols are willing to experiment with non-traditional collateral assets to optimize capital efficiency and liquidity. As the market continues to evolve, Compound’s decisions will likely influence other lending platforms to consider similar token sets, potentially accelerating the cross-protocol adoption of stablecoins with high APYs and Ether LST-based instruments.
DeFi TVL trends and restaking dynamics
The DeFi landscape has seen a remarkable surge in total value locked (TVL) as investors embrace yield-bearing strategies and restaking concepts. The latest market data show that aggregate DeFi TVL stands at approximately $117 billion as of early January, marking an increase of about 150% year-to-date. This growth is notable because it comes despite the fact that it remains below 2021’s peak levels, when DeFi TVL touched roughly $170 billion. The uptrend is driven by several converging factors, including the rising popularity of liquid staking tokens (LSTs) such as mETH and restaking-enabled assets that allow holders to maximize yield without relinquishing participation in staking ecosystems. The ongoing development and integration of LSTs and LRTs across major DeFi platforms contribute to a broader narrative around capital efficiency and high-yield opportunities within decentralized finance.
Restaking, a concept central to the latest wave of DeFi innovation, involves taking a token that has already been staked—held as collateral with a validator in exchange for staking rewards—and utilizing that same token to secure liquidity and borrowing power across multiple protocols. This approach allows stakers to unlock additional yield streams while maintaining their staking commitments. In Mantle’s ecosystem, mETH exemplifies the potential of restaking to convert staked ETH into a more versatile asset that can be deployed across DeFi protocols, boosting liquidity cycling and yield generation. The cmETH token extends this idea by offering further restaking opportunities through its design as a liquid restaking derivative, enabling holders to participate in restaking rewards while retaining liquidity.
The current yield environment in DeFi also reflects how individual derivatives and restaking tools interact with lending protocols. Mantle has reported a 2.86% annual yield on staked ETH via mETH, highlighting the practical returns that restaking can deliver in the current market. cmETH, by design, is positioned to enhance yields further by enabling restaking rewards to flow into holders’ portfolios, thereby increasing the overall attractiveness of restaking within a diversified DeFi strategy. These dynamics contribute to a broader trend where restaking assets—engineered to maximize upside from staking activities—are integrated into borrowing and lending ecosystems, enabling more sophisticated yield optimization while expanding the variety of assets available for collateral and liquidity provision.
The TVL growth and restaking-enabled yield environment are closely linked to the evolving composition of DeFi protocols. As platforms like Compound add USDe and mETH to their collateral sets, the demand for staking-derived assets as usable collateral tends to rise. This not only broadens the base of tokens available for lending but also elevates the potential for cross-protocol yield strategies. Traders and yield farmers may increasingly rely on a mix of stablecoins with robust yields and LST-backed tokens to balance risk and reward. However, the expansion also introduces additional risk factors, including smart contract risk, governance risk, and the sensitivity of yields to changes in staking reward rates and market conditions. Stakeholders must monitor these dynamics as the DeFi space continues to evolve with more assets and restaking derivatives entering mainstream platforms.
As of January 9, the landscape for DeFi TVL indicates a strong trend toward diversification and restaking-enabled liquidity. The overall market momentum suggests that more protocols will likely explore the integration of LSTs and LRTs into their collateral and liquidity frameworks. This would contribute to a widening of the asset mix in DeFi lending markets and could drive further growth in TVL across the sector. The synergy between lending protocols and restaking assets represents a pivotal development for DeFi, wherein capital efficiency is amplified by innovative token structures designed to unlock additional yields while maintaining exposure to staking ecosystems. Stakeholders should prepare for continued cross-pollination between staking, restaking, and lending, with governance-driven decisions shaping the pace and scope of such integrations in the months ahead.
Stablecoin market evolution and Ethena’s USDe growth
Stablecoins have been central to recent shifts in the crypto liquidity landscape, with market capitalizations swelling in the wake of political and regulatory developments and broader adoption. Since November, the combined market capitalizations of the top three stablecoins—the U.S. dollar-pegged peers USDT, USD Coin (USDC), and Dai (DAI)—have risen by more than $25 billion, underscoring a broad influx of capital into stable-value assets and their growing role in DeFi, cross-chain transfers, and liquidity provisioning. The trend reflects a demand for stablecoins within diversified portfolios and DeFi strategies as users seek to mitigate volatility while still participating in high-APR opportunities.
Ethena’s USDe, a yield-focused stablecoin, emerged as a notable exponent of this trend. In December, USDe surpassed Dai in total market capitalization to become the third-largest stablecoin, trailing only USDT and USDC. The launch of USDe in February of the previous year catalyzed significant inflows from stablecoin holders seeking double-digit APRs, enabling stablecoin liquidity providers to access competitive yields. The rise of USDe represents a meaningful shift in the stablecoin hierarchy, highlighting how yield-centric stablecoins can challenge more established assets in terms of market prominence and user adoption. This trend is particularly relevant for DeFi lending platforms seeking to diversify collateral and yield opportunities beyond the traditional top-tier stablecoins.
Yield data on USDe has drawn attention from researchers and market observers. Since its February 2024 rollout, USDe holders have enjoyed a historically elevated APY, with Messari noting an average yield around 17.5% since its launch, peaking at 55.9% on March 7, 2024 and dipping to 4.3% on August 8, 2024. These figures illustrate the volatility inherent in high-yield stablecoins and the importance of risk management and price stability protocols in sustaining attractive yields over time. As of January 9, the staked version of USDe (sUSDe) was yielding approximately 11.25% annualized, according to market analytics. This composite picture—high potential yields, volatility, and the growing adoption of USDe within DeFi ecosystems—helps explain why lenders and borrowers are keen to integrate USDe into lending protocols, as evidenced by its addition to Compound.
The broader stablecoin narrative is reinforced by the continued growth in stablecoin market caps among the leading assets. In addition to USDe’s ascent, the sector’s most prominent players—USDT, USDC, and Dai—maintain dominant positions, but newer entrants like USDe are reshaping the competitive landscape. The rise of yield-oriented stablecoins signals a shift in how liquidity and borrow-lend dynamics operate, particularly in DeFi protocols where stable assets are required for collateral, liquidity provisioning, and risk management. Market observers expect continued interest in stablecoins that offer robust yields, provided they maintain reserve integrity and price stability. As more platforms incorporate USDe and similar assets, the DeFi ecosystem could see improvements in liquidity depth, borrowing capacity, and overall efficiency, though it will be essential to monitor funding cost dynamics, reserve management, and potential regulatory considerations affecting stablecoins and restaking derivatives alike.
Across DeFi analytics and research notes, the evolving stability and yield characteristics of USDe, alongside Mantle’s mETH and the potential cmETH integration, are shaping expectations for the next several quarters. The combination of high-yield stablecoins and restaking-enabled assets could unlock new forms of liquidity provision, particularly on platforms that support cross-asset collateral and restaking strategies. For users, this means expanded opportunities to deploy stablecoins for borrowing with favorable rates or to leverage staking-derived assets to maximize yield while maintaining liquidity. For protocol teams, it underscores the importance of robust risk controls, transparent governance, and education for users to navigate the complexities of restaking, collateralization, and yield optimization in a rapidly evolving DeFi environment.
The stability-versus-yield trade-off remains central to stablecoin adoption. While USDe’s market leadership and yield advantages entice participants, the potential for volatility and the risk of reserve management issues necessitate careful risk assessment. Regulators and market participants are closely watching how yield-focused stablecoins perform during periods of market stress, and how platforms manage collateral diversification and redemption dynamics. The dynamic presented by USDe and similar assets reflects a broader trend toward integrating high-yield instruments into mainstream DeFi, with significant implications for liquidity, borrowing capacity, and overall ecosystem resilience. As the market continues to mature, the balance between reward opportunities and risk controls will shape user sentiment and the long-term viability of these innovative stablecoins within lending protocols like Compound.
Implications for users, risk considerations, and ecosystem
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Expanded access to diverse collateral: By adding USDe and mETH, Compound broadens the range of collateral available to users, potentially reducing liquidity constraints for borrowers and enabling more nuanced strategies for lenders who want exposure to stable-yielding assets and restaking-enabled tokens. This diversification supports deeper liquidity pools and can improve capital efficiency across the platform.
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Yield opportunities and cross-protocol strategies: The integration underscores a broader DeFi trend toward cross-protocol yield optimization. Users can couple restaking instruments with stablecoins and other assets to pursue higher APYs, while preserving borrowing capabilities and market access. The potential inclusion of cmETH would further enhance restaking-based yield opportunities, enabling users to participate in restaking rewards across multiple protocols while maintaining liquidity.
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Risk considerations and governance oversight: Introducing non-traditional collateral such as yield-bearing stablecoins and LSTs introduces new risk vectors. These include smart contract risk, liquidity risk, and exposure to restaking reward volatility. Governance processes will need to monitor these dynamics, publish transparent risk disclosures, and adjust collateral factors and risk parameters as needed to maintain platform safety and user protection.
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Impact on user experience and onboarding: The expansion can improve user experience by providing more versatile options for collateral and liquidity management. However, the added complexity requires clear educational resources to help users understand how USDe, mETH, and cmETH function within the lending framework, how yields are generated, and how restaking interacts with borrowing costs and liquidation risks.
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Ecosystem-wide implications: As major platforms experiment with LSTs and yield-bearing stablecoins, other DeFi protocols may follow suit to remain competitive. This could lead to a broader shift in collateral architecture across the space, with more assets entering lending markets, more restaking derivatives circulating, and a more interconnected DeFi ecosystem. Stakeholders should watch for potential regulatory clarifications and market dynamics that could influence the risk-reward calculus of these assets.
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Practical considerations for users: Lenders considering these assets should assess price stability, yield stability, and liquidity depth. Borrowers evaluating USDe and mETH as collateral should consider collateralization ratios, funding costs, and potential volatility in restaking rewards. Users may benefit from simulating scenarios across different market conditions to understand how changes in staking yields, token prices, and platform fees could impact their positions.
Future developments and potential integrations
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cmETH integration prospects: Ongoing discussions about integrating cmETH into Compound hint at a broader strategy to fuse restaking derivatives with conventional lending markets. If adopted, cmETH could provide additional yield uplift via restaking rewards while serving as a flexible collateral asset. Such an integration would require careful risk assessment, governance oversight, and clear disclosure about how cmETH behaves in a borrowing scenario, including any potential slippage, staking risk, and redemptions.
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Broadening LST and LRT usage: The movement toward using LSTs and LRTs across major DeFi platforms is likely to accelerate. As more protocols test and implement restaking derivatives within their collateral framework, users will gain access to increasingly sophisticated yield-generation strategies. This trend could lead to more robust liquidity, deeper markets for staking-derived tokens, and enhanced capital efficiency across DeFi.
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Cross-chain and multi-protocol implications: The adoption of LSTs and stablecoins with strong yield profiles may drive cross-chain usage and multi-protocol interoperability. Platforms that support seamless cross-chain transfers and flexible collateral configurations could see rising demand for diverse assets as part of holistic yield optimization playbooks. The governance and technical architecture required to support cross-chain restaking and collateralization will be pivotal in determining the pace and safety of these developments.
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Risk management and disclosure improvements: As these assets gain prominence, protocols will likely bolster risk management practices, including stress testing, liquidity risk analysis, and enhanced disclosures about collateral risk, governance processes, and reward dynamics. This attention to risk will be essential for maintaining user trust and long-term platform resilience in a rapidly evolving DeFi environment.
Conclusion
Compound Finance’s decision to add Ethena’s stablecoin USDe and Mantle’s liquid staking token mETH as lending collateral marks a meaningful expansion of its collateral framework and a clear signal of DeFi’s ongoing shift toward yield-oriented assets. The governance move aligns with broader market trends that see DeFi platforms embracing stablecoins with high APYs and restaking-enabled instruments to enhance liquidity, diversify risk, and unlock new yield opportunities for users. The potential integration of cmETH further underscores the ecosystem’s momentum toward cross-protocol restaking strategies that can amplify returns while maintaining borrowing capabilities.
As total DeFi TVL continues to rise and diversify—driven in part by LSTs, LRTs, and yield-bearing stablecoins—the implications for borrowers, lenders, and the broader DeFi landscape are substantial. Users can anticipate more flexible collateral options, expanded liquidity pools, and new yield-generation paradigms across platform ecosystems. At the same time, the industry must remain vigilant about risk management, governance transparency, and the evolving regulatory environment to ensure sustainable growth. The coming quarters are likely to feature further experimentation with restaking derivatives, broader collateral diversification, and deeper cross-protocol collaboration as DeFi protocols pursue higher capital efficiency and richer investor opportunities.
