Key Takeaways:
- Ethena’s ENA token surged 550% in simply 5 months.
- USDe’s whole provide grew by 1.5x, reaching $5.8 billion.
- Sustaining excessive APY charges stays a key problem for Ethena.
Since September 2024, the value of Ethena (ENA) has risen by 550%. What does this protocol provide to the market, and does it have potential?
Though Ethena is a younger undertaking, it has already entered the highest 10 decentralized finance (DeFi) platforms by Whole Worth Locked (TVL). Based on DeFiLlama, Ethena ranks tenth with a TVL of $5.8 billion.
Notably, the protocol is shut behind Uniswap (UNI), the second-largest DeFi platform, with $5.9 billion.
Ethena operates on Ethereum (ETH) and focuses on a single product: USDe, an artificial greenback asset.
In contrast to fiat-backed stablecoins like Tether’s USDT, USDe doesn’t depend on bodily reserves to take care of its 1:1 peg to the greenback. As a substitute, Ethena makes use of delta hedging, which employs perpetual futures to stabilize USDe’s value. In principle, this strategy offers a extra dependable hyperlink to the greenback. By constantly adjusting publicity to Ethereum or Bitcoin (BTC), this strategy ensures a secure peg whereas staying true to crypto’s decentralized ethos.
Regardless of being a newcomer to the stablecoin market, USDe has reached 4th place by market capitalization, with $5.7 billion, in line with CoinGecko.
It’s unlikely that USDe will surpass giants like USDT ($139 billion market cap) or USDC ($52 billion market cap). Nonetheless, Ethena might carve out a distinct segment within the DeFi house.
Ethena’s Value Rises by 550% in 5 Months
Ethena launched its token below the ticker ENA in 2024. Throughout the preliminary weeks of buying and selling, the token’s value reached $1.52 on April 11, marking its all-time excessive (ATH). Nonetheless, a sequence of value drops adopted.
On Sept. 6, ENA hit a low of $0.1951 earlier than starting a restoration. By Jan. 6, 2025, the token practically matched its ATH, rising to $1.25.
Because of this, ENA’s value elevated by roughly 540%.
Income figures have been additionally revealed. Token Terminal reviews that Ethena ranks among the many prime 10 protocols by charges because the starting of the 12 months. The protocol secured eleventh place with $32 million, surpassing Aerodrome (AERO), a preferred asset amongst sensible cash and a undertaking on the Base platform.
Why Is Ethena Rising?
The stablecoin market is extremely aggressive. Tether alone dominates the house with a considerable market cap, making it unlikely for any undertaking to overhaul it quickly. Nonetheless, one benefit of Ethena is that it operates as an ecosystem, not only a single product like USDe.
USDe holders can earn 13% APY via staking immediately through the protocol (as of Jan. 24, 2025). This fee is taken into account excessive by business requirements.
Ethena can also be creating a decentralized change (DEX) referred to as Ethereal. USDe is anticipated to turn out to be one of many primary belongings on this platform, which can probably enhance liquidity.
Ethereum contributes to Ethena’s success as properly. It’s a confirmed blockchain and a pacesetter within the DeFi house. Furthermore, Ethereum stays the dominant blockchain for stablecoins.
Based on CoinGecko, practically 50% of stablecoins have been on Ethereum as of September 2024, with Tron coming in second at 34.5%.
CryptoQuant knowledge exhibits that the variety of stablecoins on ERC-20 (Ethereum’s normal) started growing sharply in October 2024. On Oct. 31, the full provide was 83.9 billion, rising to 111.3 billion by Dec. 25.
This development correlates with the rising whole provide of USDe. Based on Dune, USDe’s provide elevated from 3.4 billion on Oct. 30 to five.8 billion in January 2025, practically a 1.5x improve.
What Are the Dangers of Ethena?
Whereas the dearth of greenback reserves is a bonus for Ethena, making certain the decentralization of USDe, the speed peg nonetheless depends on third events. In Ethena’s case, these third events are centralized exchanges (CEXs) the place delta hedging happens.
Based on official knowledge, Ethena primarily makes use of Binance and Bybit to open positions. Bitcoin accounts for 57% of the collateral, adopted by Ethereum at 29%.
The danger lies within the potential for these exchanges to be compromised or endure reputational harm, which may jeopardize USDe’s peg to the greenback.
Moreover, a part of the collateral is locked in Ethereum Liquid Staking Tokens (LSTs). Though this at present accounts for only one%, the determine might develop as Ethena good points reputation.
Researchers from Pink Brains have additionally raised issues about earnings distribution between USDe and ENA holders. Whereas Ethena’s major focus stays on USDe, the long-term sustainability of the present APY charges is unsure. Excessive APY percentages are sometimes diminished after the early phases of such initiatives.
Nonetheless, the problem can be the way to
• Stability yield distribution between sUSDe and ENA holders.
• Guarantee sUSDe stays enticing with aggressive yields (~9-12% APY).
It’ll be attention-grabbing to see how Ethena decides to drag this off, as the ultimate strategy could have an enormous…— Pink Brains (@PinkBrains_io) November 19, 2024
Ethena continues to be a brand new undertaking, and it has proven promising outcomes inside its first 12 months. Being a part of the Ethereum ecosystem provides it a powerful basis to carve out a distinct segment within the algorithmic stablecoin house.
It’s value noting that DeFi is experiencing fast improvement, sometimes called a “DeFi Renaissance.” Stablecoins play an important position on this development by offering liquidity and bridging decentralized functions with the centralized world.
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