The cryptocurrency world is abuzz with speculation after Charles Edwards, founder of Capriole Investments, staked an impressive claim about the newly launched Ethena or ENA. Characterizing the cryptocurrency as the “Luna of this cycle”, he has fueled the growing interest in ENA with a key distinction that its economic principles are sustainable over time.
Explicating his claims, Edwards provided, “ENA is 100% collateralized and its yield alters based on the ebbs and flows of the market, an economic edge that Luna lacked.” He further drew attention to the fact that Luna’s peak valuation glaringly surpassed ENA’s current market cap by more than a magnitude of twenty, despite this, he prudently warned, “ENA isn’t without risk, it carries its share of custodial and execution risks.”
ENA has seen a sharp uptick in its fortunes since its launch on April 2, with its value skyrocketing from a mere $0.30 to a striking $1.45. This surge can be attributed largely to Ethena Labs’ tactical enhancement of its rewards program, inaugurating its “Season 2,” offering an enticing 50% reward increase for users who secure their ENA tokens for a minimum hold period of one week. This strategy is aimed at propelling user engagement and loyalty, laying the foundation for a healthy, enduring ecosystem around the Ethena platform.
The accelerated growth of Ethena’s stablecoin, USDe, is another remarkable feature of this emergent ecosystem. Surpassing the supply growth trajectory of established competitors like USDT, USDC, and DAI, USDe reached a phenomenal $2 billion supply in just a tad over 100 days.
Nevertheless, the general consensus about the extraordinarily high yields produced by leveraging the derivative markets and staked Ethereum is of cautious skepticism. Andre Cronje, founder of Fantom, is among the industry stalwarts who have raised concerns over the sustainability of these yields, currently the highest within the cryptosphere.
A point to be highlighted is that ENA, frequently compared with Terra Luna (LUNA), is fundamentally different, a point, Edwards reiterates. Despite holding its own set of risks, the catastrophic end witnessed by LUNA seems improbable for ENA. However, Edwards stresses that investors should stay cognizant of the risks associated with ENA.
Drilling deeper into associated risks, intriguing insights were provided by a financial analyst known only as CL (@CL207) from eGirl Capital. She illuminated the behavior of derivative traders, and observed, “Usually, investors who aren’t inclined to trade derivatives confront a paradox in understanding why derivative traders are willing to pay an exorbitant 50%+ APR to enter a position.”
It’s worth remembering that in the last cryptocurrency cycle, futures were bid at such inflated rates that Bitcoin quarterlies delivered a locked-in >50% apr. Additionally, in the first 50 days of 2021, a cumulative amount of $2,400,000,000 was paid in funding rates – by the year’s end, this amount grew to resemble the GDP of a moderately sized nation.
Monetsupply.eth (@MonetSupply), a financial analyst from Block Analitica, provides a meticulous analysis of the risks Andre Cronje underscored. His exploration spotlights several focal areas of concern. However, despite acknowledging these risks, MonetSupply concludes that the framework of overcollateralization on platforms like Morpho, the Maker surplus buffer, and the MKR backstop seem to ably offset these risks. These safeguards, coupled with the substantial Proof of Liquidity (POL), create a strong bulwark.
As of this report, ENA is trading at $1.329– a testament of its rising imprint within the cryptocurrency market.
