Decentralization has always been a key priority in the cryptocurrency sector. Various initiatives strive to tokenize and decentralize all business models enabled by blockchain technology. Since the assets commonly used in stablecoins are centralized, there is a growing effort to develop decentralized alternatives in this area. This article offers an overview of Ethena, a rapidly emerging project in this field, including what Ethena is, how it works, and essential information about the ENA coin, such as how to store and trade it.
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What is Ethena (ENA)?
Ethena, founded with the goal of creating a decentralized and algorithmic stablecoin, is a decentralized finance (DeFi) platform built on the Ethereum blockchain. The USDe stablecoin, developed for this purpose, along with the platform’s governance token ENA, have rapidly gained recognition and achieved significant market value.
Ethena aims to provide a decentralized alternative to widely used centralized stablecoins through its algorithmic stablecoin infrastructure.
How Does Ethena (ENA) Work?
Ethena’s primary product is the USDe stablecoin. For a stablecoin to be considered decentralized, two main conditions must be met: it must not be technically controlled by a central authority, and its reserves must not include centralized assets. Since USDe is governed by a consensus mechanism where ENA coin holders vote on decisions, the first condition can be considered satisfied.
For the second condition, a closer look at Ethena’s operating principles is necessary. To issue the USDe stablecoin, Ethena requires collateral in Bitcoin, ETH, staked ETH, or SOL. This ensures that the USDe stablecoin’s reserves are composed of decentralized cryptocurrencies. As a result, the second condition is also fulfilled, meeting the essential criteria for a decentralized stablecoin.
How Does USDe Work?
Because the values of the assets in USDe’s reserves are not stable, USDe needs to maintain its own stability. To do this, a ‘short’ position is opened for each asset deposited as collateral by users.
The futures market, which enables leveraged trading, allows traders to earn additional income through Long positions when cryptocurrency prices rise, and through Short positions when prices fall.
Let’s use the ETH assets in USDe’s reserves as an example to illustrate its structure:
Ethena keeps the value of the USDe reserve stable by opening an ETH short position for every ETH used as collateral. This ensures the reserve’s value remains steady whether ETH prices rise or fall. When ETH prices go up, the reserve’s token value increases, but the short position loses an equivalent amount, balancing the change. Conversely, when ETH prices drop, the reserve’s value decreases, while the short position gains value, again offsetting the loss. This mechanism ensures USDe maintains a stable value and prevents undercollateralization.
This system works in the same way for all other assets accepted as collateral.
What is sUSDe?
Ethena allows users to earn passive income through its stablecoin. However, to do so, users must stake the USDe stablecoin. In return for staking, they receive sUSDe — a cryptocurrency that represents their staked assets.
The passive income Ethena distributes to USDe stakers is derived from two main sources:
- Since there is staked ETH in the reserves of the USDe stablecoin, these assets earn passive income through Ethereum’s staking infrastructure.
- The short positions opened to maintain the stability of USDe generate income through the funding rate. The funding rate adjusts fees based on whether long or short positions dominate the market, increasing the fee for the dominant side to help maintain balance. This increased fee is paid as a reward to those holding the non-dominant position. Since markets like ETH-BTC and SOL are almost always dominated by long positions, the funding fees are typically paid to those who open short positions. Ethena distributes the commission income it earns from this mechanism to users who stake USDe.
Key Facts About Ethena (ENA)
- Ethena was first announced by Guy Young in July 2023.
- Ethena operates on the Ethereum blockchain.
- Ethena is a decentralized algorithmic stablecoin platform.
- USDe is an algorithmic stablecoin belonging to Ethena.
- The USDe stablecoin was launched on February 19, 2024, and the ENA coin on April 2, 2024.
- ENA coin is Ethena’s governance cryptocurrency. The ENA token is used for voting on changes within Ethena.
- ENA coin can also be used to reward users.
- The maximum supply of ENA coin is capped at 15 billion.
- You can visit Ethena’s website here, and access detailed information here.
How to Store Ethena (ENA)?
You can store and manage your ENA assets using browser, desktop, mobile, and hardware wallets that support the Ethereum blockchain.
How to Buy and Sell Ethena (ENA)?
You can buy and sell Ethena (ENA) with Tether (USDT) using the BtcTurk | Global website or mobile app. If you’re not yet a member, you can easily register on our website or app and buy Ethena (ENA) by depositing cryptocurrency.
