Altcoin Spotlight: Ethena (ENA)

Cryptocurrency has been on a roller coaster as of late, with numerous tokens experiencing large price swings, including BTC, which hit the monumental $100,000 just as the end of the year approached.

As such, it has been a bit difficult to monitor the top 50 altcoins. One token that has been toeing the line, listed in position 53 as of the writing of this article, is Ethena. Ethena is something new that is emerging, known as a crypto bond—keep reading to learn more.

What is Ethena?

In simple terms, Ethena is a stablecoin built upon the Ethereum blockchain. Stablecoins are pegged to a fiat currency, and Ethena is pegged to the US dollar, allowing traders to use a digital version of the fiat currency on the Ethereum platform.

Ethena is a fully decentralized stablecoin, promoting itself as an alternative to digital banking systems. Ethena has sadly been compared with the failed stablecoin project Terra (LUNA).

How Does Ethena Work?

Like other stablecoins, Ethena is a type of smart contract in which individuals can lock up their fiat currency in exchange for a digital version of the USD (called USDe) to use on a specific platform.

Unlike other stablecoins, Ethena relied on the cash and carry trade to maintain its value. Basically, this means that when you mint USDe, the Ethena smart contract purchases, and shorts a comparable amount of Ethereum, which is then staked to maintain the value of the token.

Besides just maintaining the value of the Ethena you are now holding, this unique cash and carry approach also makes the smart contract money, producing revenue.

Something that is unique about USDe when compared to other stablecoins is that it can be staked by trading your USDe tokens for sUSDe. All tokens staked must remain staked for at least 7 days, but after that you can unstake by simply trading your sUSDe for USDe. As of the writing of this article, the average staking returns since inception were reportedly 9%.

What is ENA?

ENA is the native token behind the Ethena, which functions as a governance token. If you hold ENA, you can vote on the future of the project and help make decisions for the platform.

ENA has a current supply of 15 billions tokens which are allocated as follows:

·      5% airdropped to early users

·      15% are maintained by Ethena Labs

·      20% to investors

·      30% to creators/core contributors

·      30% allocated to future development

Who Created Ethena?

Ethena Labs, the company behind Ethena, was created by CEO Guy Young toward the end of 2023. Before creating this stablecoin project, Guy worked in the finance industry and had a lot of experience with hedge funds, capital management, and more. As far as we can tell, Guy is still active with the project and involved in day-to-day operations.

Ethena Labs is supported by many firms, namely Dragonfly, Wintermute, and OKX Ventures. It also has the support of Arthur Hayes, the creator of Bitmex.

Should You Buy Ethena?

In general, we never recommend investing in stablecoins. Because they are pegged to a value (often fiat currency), they don’t make good investment instruments as you are unlikely to gain a reward. Of course, Ethena is unique in that you can gain staking awards by staking the sUSDe which has been reportedly high.

Regardless, we do not recommend investing in Ethena. This stablecoin is one of the newest on the market and is markedly untested. While it seems to be performing well right now, it hasn’t been through a crypto bear market yet, and professionals are unsure how it will fare when the next one comes.

Additionally, security professionals have brought up some concerns with the Ethena platform as a whole, worried that someone could hack the algorithm and manage to steal tokens. We assume that the platform is making moves to eliminate these security risks, but again, it is new, so it will take time.

Of course, investing in cryptocurrency is a personal decision. So, if you have taken a good look at Ethena and think it is suitable for your portfolio, feel free to invest.

Will Ethena Collapse Like Terra?

Many investors were turned off from investing in stablecoins in May 2022 when a major flaw in the Terra system caused the token to crash entirely in just a few hours—inevitably leaving investors holding an empty bag.

Sadly, we do not have a crystal ball so we cannot tell you for certain that Ethena won’t crash someday. That being said, it’s important to know that Ethena is built on a different protocol than Terra. So, if it does crash, it will be for a reason or flaw we are currently unaware of.

For reference purposes, Terra was built on a mint/burn algorithm which is much different than the cash and carry algorithm that supports Ethena. In theory, even if the Ethereum-backed positions keeping the USDe value steady decline, the short position which is opened during the process of swapping fiat for USDe should keep the value of the stablecoin steady.

Where Can You Buy Ethena?

It is possible that you have decided Ethena is a good stablecoin for you to use. You can make your investment using one of the following exchanges:

·      KuCoin

·      Binance

·      CoinEx

·      Kraken

·      Bybit

·      Gate.io

·      MEXC

These are the major exchanges where ENA can be purchased, though there may be more available that we didn’t mention here. If you are already a member of a particular exchange, feel free to check there before making a new account on another platform.

All in all, Ethena is a unique stablecoin project that creates a digital version of USD. It is a fairly new project, based on the cash-and-carry method of maintaining value. While it certainly isn’t the worst stablecoin we’ve discussed on this blog, it is too new of a project for us to gauge whether or not it is a good investment. So, if you do decide to purchase some ENA, ensure you proceed with caution and only invest money you are comfortable with losing.