Key Takeaways
Ethena airdropped its governance token ENA on April 2. Its price is already up over 70%, reaching the top 100 cryptocurrencies based on their market cap.
There have been concerns about Ethena’s ability to maintain its stability, leading to echoes of past fiascos such as Terra’s UST and the FTX crash. Can the same happen to Ethena, and how will this affect the ENA price?
Ethena is a synthetic dollar protocol whose main offering its USDe, a synthetic dollar. USDe is not pegged to fiat currencies, nor is it algorithmic.
Rather, it is collateralized with crypto assets and short futures positions. The way its stability is ensured is by using short futures positions to offset changes in the price of the collateral asset.
Ethena offers yields up to 37%. It does this through staking ETH and through using the funding spread from its short hedges.
On April 4, Ethena announced it will add BTC as a backing asset to its collateral basket. This aims to increase the capacity of USDe to scale by 2.5x.
However, not everyone in the crypto space is enamored with Ethena. Notably, Fantom founder Andre Cronje believes there are the Ethena protocol brings with it numerous risks.
More specifically, negative funding rates could heavily hinder Ethena’s ability to provide yield. They occur during market downtrends where short traders pay a premium to long traders to keep their positions open
On April 2, Ethena airdropped 750 million ENA tokens, which represent 5% of the total supply. At the current price of $92, ENA is ranked #81 based on its market capitalization.
Shortly after its launch, ENA increased by 350% to reach a new all-time high of $1.32. However, it has been falling since and currently trades at $0.93, at the 0.382 Fibonacci retracement support level.
Since there is not sufficient data to analyze the price movement, it is difficult to predict the direction of the future trend. Rather, whether the ENA price breaks down below the $0.93 area or breaks out from its descending resistance trend line instead can determine the future trend’s direction.
A breakdown from the $0.93 area could trigger a 25% drop to the next closest support at $0.69. Conversely, a breakout from the trend line can lead to a 30% increase to the next resistance at $1.20.