What Is Ethena Protocol?
Ethena (ENA) protocol is a player in the decentralized finance (DeFi) arena, offering a unique take on stablecoins. Unlike traditional stablecoins pegged to fiat currencies like the US dollar, Ethena's brainchild, USDe, is a synthetic dollar. This means its value is maintained through a clever combination of crypto assets and derivatives, not by directly referencing a traditional currency.
Ethena's approach aims to achieve several things. Firstly, it seeks to create a censorship-resistant and scalable alternative. Traditional stablecoins can be susceptible to control or blockage by centralized institutions. Ethena, built on the Ethereum blockchain, leverages the power of decentralization to avoid such limitations.
So how does USDe maintain its peg? Ethena utilizes a combination of staked Ethereum (a process where users lock up their Ethereum to earn rewards) and short futures positions. The short futures act as a hedge, meaning they essentially offset potential price fluctuations in Ethereum. This helps USDe stay relatively stable around the $1 mark.
What Issues Does Ethena Solve?
Based on the above description, you may think ENA protocol just provides another stablecoin, similar to USDT or USDC. However, Ethena's USDe is by no means the same as a fiat stablecoin like USDC or USDT.
Ethena emerges from a critical need in the cryptocurrency world. DeFi aspires to create an independent financial system, but stablecoins, a cornerstone of DeFi, now mostly depend on traditional banking systems. Traditional financial institutions can exert undue influence on stablecoins. We've witnessed how popular stablecoins become vulnerable when traditional institutions face problems. A prime example is USDC, whose managing company deposited a large sum in Silicon Valley Bank. When the bank encountered issues, the value of USDC immediately dropped.
Ethena aims to be a scalable, native cryptocurrency. Unlike USDC and USDT relying on traditional banking system, ENA creates USDe via staked crypto assets, facilitating the development of a genuinely decentralized financial landscape.
What Is Ethena (ENA) Token?
Ethena also recently launched its ENA token. This token grants holders governance rights, allowing them to participate in decisions about the protocol's future development. The launch and strong initial performance of ENA highlight the growing interest in Ethena's synthetic dollar solution.
It is worth noted that ENA token is not the same as USDe. The former is the governance token in the ENA protocol, and the latter is the stablecoin generated by the ENA protocol, making the two completely different.
Valuation of ENA Token:
The ENA protocol paints a grand narrative. In this narrative, the ENA protocol has the potential to help the entire DeFi area get rid of its dependence on the traditional banking industry, thereby truly developing an ecosystem that truly belongs to the Web3 world. From this perspective, the current market value of ENA token is only about $1.3 billion, and FDV is about $140 (as of April 5, 2024). Such figures are obviously not enough to support its grand narrative.
On the other hand, the phase of price correction is ongoing now. After the price correction is over, assets such as BTC and ETH will rise. At that time, it will also be possible to attract more crypto assets to be staked to the ENA ecosystem, thus increasing the price level of the ENA token. By then, the market value of ENA token may exceed tens of billions of dollars, and FDV may even approach hundreds of billions of dollars.
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