How to Invest in Ethena on Notum

The crypto space still receives some mistrust from people who prefer the centralized finance world. At the same time, CeFi has a much lower level of security and transparency and is also dependent on central authorities. Thus, there’s a need to create a kind of bridge between the DeFi and CeFi ecosystems.

Ethena is a platform that combines DeFi space and real-world asset markets. Its native token called USDe is a synthetic dollar offering a crypto-scalable money solution. Since USDe is backed by both cryptocurrency and short futures positions, it can be used in both DeFi and CeFi spaces.

Notum breaks the Ethena protocol down to show you how it works, explain what is unique about USDe, and how you can earn crypto using it. In addition, we will pay attention to the recent ENA token issuance and talk about what you need to do to increase your chances during the second token airdrop.

Ethena: the Essentials

• TVL: $2,372B
• Average APY: 14.73%
• Risk Level: Medium
• Blockchains: Ethereum
• Foundation Date: 2023

Ethena is a synthetic dollar protocol that offers crypto-native options for finance independent of the traditional banking sector. The protocol places itself alongside the so-called 'Internet Bond', a global dollar-denominated instrument.

«It combines yield derived from staked assets to the extent used as backing assets, as well as the funding & basis spread from perpetual and futures markets, to create the first onchain crypto-native solution for money» - Ethena Labs.

Source: Ethena Whitepaper

Ethena is also an RWA platform on Ethereum and ranks first in the DeFi market with a total value locked of over $2.37 billion, beating its closest competitor Maker RWA by more than $140 million.

Interesting fact! Real-World Assets or RWAs are tangible assets that exist in addition to the digital space, such as equipment, real estate, etc. In the blockchain world, RWAs are tokens that represent these financial assets.

RWA platforms like Ethena seek to connect the decentralized finance ecosystem with real-world asset markets. Thus, Ethena’s USDe is a synthetic dollar that provides users with a crypto-scalable money solution. The protocol achieved this due to Bitcoin collateral and delta-hedging Ethereum.

The uniqueness of USDe is that it can be created in both the world of centralized and decentralized finance. USDe peg is ensured due to the use of delta hedging derivatives positions against protocol-held collateral. However, even though the stablecoin is fully backed, there are still some risks that could lead to back loss. More details can be found here.

Important! USDe is different from fiat-backed stablecoins like USDT and is not a crypto-backed token like DAI. As a synthetic dollar, USDe is backed by both cryptocurrency and short futures positions.

As USDe has access to centralized liquidity and is backed by assets outside the banking system, this synthetic dollar largely solves the problems that exist with other stablecoins and offers several advantages, from censorship resistance to scalability.

Source: Ethena Finance

Ethena: Generated Yield

At the moment, the protocol has two stable sources of income from the backing assets:

1. Staked ETH assets that receive rewards at the consensus and execution level. Here the income is denominated in the native asset, for example, liquid staked ETH denominates in ETH. This Ethena income type is floating.
2. The funding and basis spread. Depending on the use of non-deliverable or deliverable derivatives to hedge the backing asset delta, income from funding and basis spread can be either fixed or floating.

If the funding rates are negative over time and the income from the staked asset cannot cover the funding and basis spread cost, the protocol reserve fund covers the costs. However, historically, it generates positive yield.

More information about yield mechanisms on Ethena can be found here.

ENA Token Airdrop

On April 2, 2024, the long-awaited airdrop from Ethena Labs took place. The protocol distributed $500 million worth of ENA tokens to the users’ wallets. On the same day, Ethena Labs reported that the entire distribution had been successfully distributed. After the launch of the airdrop page, Ethena crypto token became available for purchase on major crypto exchanges such as Binance, Bybit, KuCoin, and others.

ENA is currently ranked 70th in popularity among all cryptocurrencies according to CoinMarketCap. Its circulating supply is 1,425,000,000 ENA, and its total supply is 15,000,000,000 ENA.

Interesting fact! Speaking about price performance, the all-time high of the token was reached on April 11, 2024 and amounted to $1.52, and the all-time low was reached on April 2 with an amount of $0.52. As of April 24, the ENA price is $0.89.

With Ethena's first airdrop attracting over 90,000 new users, the protocol is gearing up for a second round offering even more rewards. Approximately, the second airdrop will last until September 2 or until the total USDe supply reaches $5 billion.

This airdrop announces a new reward system with accumulating points or “sats” for holding USDe. You can also receive rewards for investing tokens in liquidity pools, lending or borrowing USDe on money markets, etc. Moreover, a unique feature of the new airdrop will be the integration of Bitcoin perpetual futures markets, which will contribute to even greater growth of USDe.

Why Invest in RWAs with Ethena?

Pros

USDe's stability

This stablecoin uses a unique backup construction, achieved through hedging against the transferred assets immediately after their release. Thus, the token maintains a synthetic collateral value in US dollars.

Scalability

Since USDe uses derivatives, this helps it to scale with capital efficiency. Moreover, backing assets can be hedged with a short position of equivalent denomination, the collateral will always be one to one.

CeFi and DeFi utilization

The token can maintain access to centralized liquidity and at the same time the core value proposition of transparency and onchain custody. This way it can scale to millions and be used in both ecosystems.

Censorship resistance

Ethena separates itself from banks’ backing and stores untrusted assets in onchain, secure, and verifiable custody account solutions.

Safety

Since the protocol takes its security seriously, it has passed several serious audits including Zellic Audit on v1 of contracts, Quantstamp Audit on v2 of contracts, as well as independent and public audits, indicating a decent level of security for Ethena.

In this way, Ethena turns digital currency into a stable medium of exchange, which means more users in both the CeFi and DeFi space.

Ethena: Investment Strategies

Ethena App offers users two crypto options for earning income - staking USDe on the platform and providing liquidity. Since Ethena only operates on one network, all that is required to get started is to connect one of the suggested wallets, after which users can explore the application's capabilities.

The “Buy” tab allows them to purchase USDe for further use of the token on the platform. Investors can use one of the offered tokens (USDT, USDC, DAI, GHO, crvUSD, and mkUSD) to receive USDe.

Important! The maximum slippage for a purchase is 0.10%, while the gas cost is $4.06.

After buying USDe, users can use one of the proposed strategies on the platform:

1. Stake. USDe is available for staking on the Ethena App with an APY of 11.6%. By holding USDe, investors receive sUSDe reflecting their stake. Gas fees for staking USDe are $2.69. On the same tab, users can unstake or claim the tokens. However, it is important to remember that USDe is available for claims only 7 days after unstaking.
2. Liquidity. Another option for generating income is providing liquidity on the platform. The protocol offers Ethena, Pendle, Liquidity Pools, Layer 2s, and Money Markets options. Each position has its own APY and Sats rewards that are worth considering before depositing assets. When locking assets on Ethena, it is important to remember that they can only be withdrawn 7 days after unlocking.

Ethena App also has a “Sats” tab where users can get all the necessary information about the campaign and ways to earn sats. The number of sats received depends on the chosen strategy and ranges from 20 to 30 per day.

Ethena: Risks and Disadvantages

Cons

Smart contract risk

Despite undergoing audits from major security firms, Ethena cannot promise users complete security of funds. Smart contract platforms may still have bugs and vulnerabilities that could negatively impact investments.

Platform's complexity

Since the platform offers a new and innovative concept of synthetic dollar and makes money from it, inexperienced investors may find it difficult to understand its specifics and choose the right investment strategy.

Custodial risks

Since the protocol uses "Off-Exchange Settlement" provider solutions to store employee assets as backup, problems with their operational ability can lead to custodial risks.

Exchange failure risk

Ethena’s derivatives positions are traded on leading exchanges, problems with which can lead to unpleasant consequences.

Other risks associated with Ethena include liquidation and finding risks, collateral risks and Chaos Labs reports. More details about all the protocol risks can be found here.

Notum’s Verdict

Ethena is a unique synthetic dollar protocol that offers users a bridge between the CeFi and DeFi spaces due to its USDe token. The platform operates only on Ethereum and has a medium risk level, and its average APY exceeds 14.73%. Thanks to Bitcoin collateral and delta-hedging Ethereum, the protocol offers a crypto-scalable solution for money.

USDe, a synthetic dollar and protocol stablecoin, is backed not only by cryptocurrency but also by short futures positions and can be created in both CeFI and DeFi. The protocol offers users a large number of advantages, such as improved scalability, censorship resistance, a decent level of safety, and various investment opportunities that allow them to receive stable rewards.

Despite such risks as exchange failure, custodial risks, smart contract vulnerability, and others, the platform still offers a unique cryptocurrency solution, combining the best of the CeFi and DeFi worlds.

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.