The cryptocurrency market is quite dynamic and always brings new developments that are not limited to memecoins or utility tokens. There is more than one way to quantify a new coin and back it to some physical asset. The case of the currency created by the startup Ethena Labs is different and innovative.
To understand how the platform's cryptocurrency works, valuation, quotation and acquisition, it is necessary to know some financial market concepts, such as stablecoin, short position, synthetic dollar and delta hedge.
Stablecoin and short position
A stablecoin is backed by some physical currency, such as USDC and USDT. Its value varies depending on the price of these assets. This is a way to make transactions on the blockchain at stable prices.
The crypto platform also adopts the concept of a short position, coming from the traditional financial market. With this strategy, it is possible to buy, sell and rent shares to negotiate the right to buy and sell. You can sell the rights for a higher price, buy the rented shares and make money on top of that.
The ecosystem uses these concepts to create USDe, when one ETH is deposited into the protocol. Once the ETH is placed there, the system goes to a centralized market (CeFi) to sell the right to buy and sell in the short position, but its value is not tied to that of the US currency.
Synthetic dollar and delta hedging
The USDe created by the system is not necessarily a stablecoin, as it is not directly backed by the dollar, but by ETH. It is considered a synthetic dollar, which is guaranteed by the cryptocurrency itself and the short position in the futures market.
To avoid large variations in the value of ETH, the platform uses the delta hedging technique. It consists of avoiding large differences in ETH prices in spot sales and short positions, through operations and mathematical formulas. This reduces interference with the USDe price in the future, as the synthetic dollar is not pegged to the US currency.
Ethena System Risks
Because it is created on Ethereum, USDe is based on the ERC-20 protocol, which provides flexibility for trading on multiple exchanges. Furthermore, they achieve scalability and avoid slowdowns when carrying out large numbers of simultaneous transactions.
On the other hand, with an innovative trading and backing system, Ethena causes concern among investors: the fact that such a procedure has never been used before. As with everything that is pioneering, there is a need for usage time to verify the stability of the process.
Another detail is the fact that it works with centralized brokers when selling ETH in a short position to develop USDe. If there is a problem, such as the bankruptcy of an exchange, this could compromise the entire system.
ENA Tokenomics
The governance currency of the Ethena platform is the ENA token, also made using the ERC-20 protocol. Unlike USDe, it is used in votes or assemblies in the community, in which holders have voting power to decide improvements and improvements in operation.
Ethena makes 15 billion tokens available: 30% for the platform's founders, 15% for reserve, 30% for ecosystem development and 25% for investors.
Learn more about cryptocurrencies
Ethena's innovative idea brings a new way to acquire stablecoins and synthetic dollars. It is possible to invest in ENA and dozens of other cryptocurrencies on NovaDAX. Register on the exchange and start your investments now!
