• Ethena's recently launched governance token, ENA, has recorded more than 42% gain in the past 24 hours.
  • Aave and MarkerDAO see debates within their ecosystems about the viability of USDe.
  • The crypto community has raised more questions about USDe's dollar peg strategy.

Ethena (ENA) recorded a 29% increase on Wednesday after the airdrop of its governance tokens to users. However, the method applied to maintain its USDe synthetic dollar token is causing a stir in the crypto community.

Read more: Ethena airdrop goes live as MarkerDAO proposes to allocate $600 million into USDe and sUSDe

Ethena's ENA soars after launch

Ethena has witnessed tremendous growth after the airdrop of its governance token to users on Tuesday. The token also went live for trading on top cryptocurrency exchanges like Binance, Bybit, OKX and MEXC. Since its launch, ENA's price has grown more than 100%.

The cryptocurrency, which debuted on exchanges near $0.640, has captured the attention of investors, reaching an all-time high of $1.297 on Wednesday before settling around $1.112 as of the time of writing.

ENA has also blown past many cryptocurrencies in the top 100 category, as its market capitalization has grown to $1.72 billion, with a fully diluted valuation of about $17.2 billion.

Ethena's on-chain metrics also align with its price growth, as its total value locked (TVL) has increased more than 2,100% since the beginning of the year, according to data from DeFiLlama. One of the major reasons for its TVL rise is the high yield of about 27.6% offered on Ethena's flagship product, USDe.

Also read: Maker price sustains above $3,700 as community debates over controversial proposal for higher profits

USDe's high yields may not be sustainable

According to Ethena, USDe is a synthetic dollar cryptocurrency that maintains its price peg to the US dollar by holding staked Ethereum (ETH) and then delta hedging it with short positions of ETH on centralized exchanges. As a result, its high-yield offerings come from yields earned on the staked Ethereum and funding fees received from the short positions.

However, debates ensued in the crypto community after a proposal on MakerDAO to allocate 600 million DAI - its crypto-collateralized stablecoin - to USDe through the DeFi protocol, Morpho Labs.

Following the announcement, Aave co-founder Marc Zeller took to X to express his concern, terming the move "the definition of reckless," due to his perception of USDe. Shortly after, the Aave Chan Initiative (ACI) proposed that DAI's loan-to-value ratio (LTV) on Aave be reduced to 0%.

Another X user, @Tardfiwhale, who also called out flaws in UST, has made several posts suggesting USDe has many flaws in its design and yield generation process.

Read more: Bitcoin price upward potential threatened as 200-EMA support is put to test

Although one of its early-stage investors, Arthur Hayes, co-founder of BitMEX, has stated that USDe's design is superior to USDe, many are still expressing concerns.

DeFi solutions architect Andre Cronje made an X post on Wednesday that questioned the long-term viability of USDe after citing potential flaws in its delta hedging methods. He mentioned that "while things are going great now (because market is positive and shorting funding rates are positive [because everyone is happy being long]), eventually that turns, funding becomes negative, margin/collateral gets liquidated, and you have an unbacked asset."

Guy Young, founder of Ethena Labs, responded to the post on X by acknowledging the concerns raised by Cronje, stating he would share his thoughts extensively later in the week.


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended Content

Editors’ Picks

XRP struggles near $0.7440, could still sustain rally after Robinhood listing

XRP struggles near $0.7440, could still sustain rally after Robinhood listing

Ripple's XRP is trading near $0.6900, down nearly 3% on Wednesday, as declining open interest could extend its price correction. However, other on-chain metrics point to a long-term bullish setup.

More Ripple News
Dogecoin price forecast: Miners offload $240M as DOGE approaches risk zone

Dogecoin price forecast: Miners offload $240M as DOGE approaches risk zone

Since Donald Trump’s victory on November 5, Dogecoin has emerged as the best performing asset among the top 10 ranked cryptocurrencies. On November 12, DOGE reached a new milestone price propelled by Trump’s statement confirming Elon Musk’s involvement in the incoming administration. 

More Dogecoin News
Ethereum Price Forecast: ETH's declining supply could fuel bullish pressure toward $3,732

Ethereum Price Forecast: ETH's declining supply could fuel bullish pressure toward $3,732

Ethereum is trading near $3,220, down 2.5% on Wednesday after its supply began trending downward. The declining supply could fuel bullish pressure for the top altcoin, especially as institutional demand for ETH ETFs is also rising.

More Ethereum News
PEPE hits new all-time high, rallies nearly 50% following Robinhood and Coinbase listing

PEPE hits new all-time high, rallies nearly 50% following Robinhood and Coinbase listing

PEPE rallied over 50% on Wednesday and hit a new all-time high after crypto exchanges Robinhood and Coinbase announced they would list the meme coin on their respective trading platforms.

More Pepe News
Bitcoin: Further upside likely after hitting new all-time high

Bitcoin: Further upside likely after hitting new all-time high

Bitcoin hit a fresh high of $76,849 on Thursday as crypto-friendly candidate Donald Trump won the US presidential election. Institutional demand returned with the highest single-day inflow on Thursday since the ETFs’ launch in January.

Read full analysis
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

BTC

ETH

XRP