What is Ethena (ENA)?

While the DeFi (Decentralized Finance) ecosystem aims to reduce dependence on traditional financial systems, it has always expressed the need for stable and reliable cryptocurrencies. This is where Ethena comes into the picture, positioning itself as a protocol that offers “Digital Dollars for the Internet Economy”. Ethena is an innovative approach that could be a game-changer in the world of finance. So, what is Ethena and the ENA token that powers it? Let's search for answers to questions like what is ENA, what is Ethena...

Definition and Origin of Ethena

Simply put, Ethena is a decentralized finance protocol that supports USDe, a synthetic stablecoin. Synthetic because USDe is not backed directly by the dollar equivalent in a bank account like traditional fiat currencies. Instead, it is created by a combination of crypto assets and their corresponding short-term trading positions, and attempts to peg its value to the US dollar. ENA is the native governance token of this protocol. In other words, the ENA token is the digital key that those who want to have a say in important issues such as how Ethena will be managed and what decisions will be made.

Ethena's core purpose is very ambitious: To create a decentralized and censorship-resistant digital dollar that is not reserve-free, fully backed or 1:1 collateralized as sources state, but independent of the traditional banking system. In other words, there is a vision to realize a digital money that banks cannot intervene in, accessible to anyone with an internet connection anywhere in the world.

The foundations of the protocol developed by Ethena Labs were laid in 2023. The journey began with inspiration from the famous crypto figure Arthur Hayes' article “Dust on Crust”. In his article, Hayes proposed the idea of “The Satoshi Nakamoto Dollar”, a delta-neutral, 1:1 backed, synthetic dollar. Guy Young was so impressed by the idea that he quit his current job and decided to build Ethena. ENA token, the native token of the protocol, was launched on April 2024.

Ethena's History: Key Milestones

Ethena's short but impactful history is a good example of the rapid development in the DeFi space. Here are some important stops on the project's journey:

• 2023: This year saw the founding of Ethena Labs, the answer to the question of what is Ethena Labs. The development process of the protocol began and the synthetic dollar USDe stablecoin was introduced. During this period, a $6 million seed funding round was completed, led by prominent investors such as Dragonfly Capital, Arthur Hayes and his family office Maelstrom were among the investors. The Testnet launch also took place in 2023.

• 2024: Ethena's mainnet launch goes live. Ethena became more widely active on the mainnet. Meanwhile, it held its first ever ENA coin airdrop. The total reward was worth $5,250. April was a critical month for the protocol. The ENA token airdrop took place, which rewarded early adopters and encouraged community participation. Then, those who qualified for airdrop Season 2 were able to claim their tokens. started. Now the third airdrop season is about to end at the end of May 2025.

• Also in the same year, the ENA token started to be listed on major exchanges. Cryptocurrency exchanges such as Binance, Coinbase, Kraken, Bitfinex, MEXC Global, Gate.io, KuCoin, Bybit; ENA listing was carried out en masse.
• USDe reached a TVL of $2 billion in a short period of time following 2024, meaning the total locked value in the protocol exceeded $2 billion. A key factor in Ethena's growth has been its backing by LSD (liquid staked assets) in the DeFi ecosystem. So what is LSD? Liquid Staking Derivatives (LSD) are tokens that represent ETH staked on Ethereum's Beacon Chain. While Ethereum stakers cannot normally withdraw their ETH for a certain period of time, LSDs provide liquidity to their staked assets and can be used for different activities in the DeFi ecosystem, such as borrowing, lending, or the Ethena yield system. Ethena uses popular LSDs like stETH to collateralize USDe. This both supports the value of USDe and allows the underlying assets to benefit from the potential for additional returns.

Why is ENA valuable?

The ENA token is more than just a crypto asset in the Ethena ecosystem, it plays a critical role in the functioning and future of the project. So, what does ENA coin do and why is ENA coin valuable?

• Governance: The primary function of the ENA token is governance. As the defi governance token of the Ethena protocol, ENA token holders have a say in important decisions. These decisions include risk management frameworks, the composition of USDe's supporting assets, potential partnerships and integration plans. Through the Decentralized Autonomous Organization (DAO) structure, ENA holders can submit proposals and vote, shaping the future of the protocol. This allows the protocol to be driven by the community and adapt quickly to changing market conditions.

• Staking and Rewards: The project's homepage states that rewards can be earned through ENA staking. ENA token holders can stake ENA to secure the network and receive rewards in return. ENA can also be used for transaction fees. More commonly, by holding/staking sUSDe, it is possible to get a share of the protocol's revenue. ENA is also important in incentive programs such as airdrops. Especially sENA (liquid ENA) holders can earn the highest reward multipliers (40x). Locking ENA or sENA is also a way to increase third season airdrop points.

• Commitment to the Success of the Protocol: The ENA token is closely tied to the overall health and success of the Ethena protocol. The protocol supports the stability of USDe with hedge positions and income-generating assets. The more successful the protocol is, the greater the return potential it offers, the more widely USDe is adopted, and the value of the ENA token is positively impacted by this success. ENA indirectly gains value as the “fuel” of the ecosystem and its fundamental unit of governance.
• Potential for Innovation and Solutions: Ethena offers an innovative solution to the next generation of stablecoin problems. Its goal of solving the stablecoin trilemma, its lack of over-collateralization, its potential for high scalability, and its censorship-resistant nature make USDe, and therefore ENA, important. These are the competitive advantages that make Ethena stand out in the DeFi space.
• Community and Airdrop Impact: Ena coin was distributed to a large user base through an airdrop. This allowed the project to quickly gain recognition and helped build an active community. Airdrop programs (especially Season 3) encourage users to participate in USDe and the ENA ecosystem, increasing demand and engagement. Ways to participate in the Airdrop (USDe holding, locking, using Pendle, Curve, Money Markets) support decentralization by spreading token distribution to a broader base.
• Partnerships and Integrations: Ethena's strategic partnership with the TON Foundation, potential access to Telegram's 1 billion+ users, and integration into the TON ecosystem (Wallet in Telegram, TON Space, Tonkeeper, Tonhub, MyTonWallet) offers huge growth potential for USDe and ENA. Partnerships with major exchanges such as Bybit and integrations with DeFi platforms such as Pendle, Morpho, Aave, Curve, etc. add to the value of USDe and ENA by increasing their use cases and liquidity.
• Breadth of Use Cases: While ENA itself offers direct benefits such as governance and staking, USDe's wide range of use cases (payment, savings, DeFi, collateral, etc.) indirectly add value to ENA, as ENA is at the center of this ecosystem.
• ENA coin price: The ENA coin is changing hands at $0.29 as of May 2025. Although the coin rose to $1.52 during its airdrop in April 2024, it has since suffered an 80 percent loss.

How Does USDe Work?

So, what is a USDe stablecoin and how does it work? The heart of Ethena is its synthetic dollar USDe, and the answer to the question of how USDE works reveals the most innovative aspects of the protocol. USDe has distinct differences from traditional stablecoins. The basic mechanism is based on the delta-neutral strategy. This strategy aims to offset the price risk of the underlying asset with a derivative position taken in the opposite direction. That is, the gain or loss from a price increase of an asset (e.g. ETH) in the spot market is offset by the gain or loss of a short position in the futures market in the opposite direction from the price movement of the same asset.

The collateralization process is the beginning of this mechanism. Users who want to mint USDe deposit various crypto assets accepted by Ethena as collateral. These include spot assets such as Bitcoin (BTC), Ethereum (ETH) and Solana (SOL), as well as liquid staked ETH (stETH) and even liquid stablecoins (USDC, USDT). Importantly, however, direct mints and redeems are currently only available to market maker counterparties that have completed KYC/KYB checks and have been approved. Other users can acquire USDe from external AMM pools (e.g. in exchange for USDT or USDC). Another important feature of Ethena's approach is that it does not require the overcollateralization seen in some decentralized stablecoins such as Dai. USDe operates with a 1:1 collateral ratio, which improves capital efficiency.

Once the collateral asset is deposited, the Ethena protocol opens a short futures position equivalent to the value of the deposited asset. This position is taken on derivatives exchanges (usually using perpetual futures contracts). Delta hedging is exactly that; offsetting the price risk of the spot asset with this short position. Let's explain with a simple example: When a user deposits $1000 worth of ETH, the protocol opens a short position for approximately $1000 worth of ETH. If the ETH price increases, the value of the spot ETH collateral increases, but the short position loses. If the ETH price falls, the value of the spot ETH collateral decreases, but the short position profits. In both scenarios, the dollar value of the total position (spot ETH + short-term trading) remains relatively constant. This “balancing act” helps USDe maintain its dollar peg.

Ethena's Revenue Model and sUSDe

In addition to stabilizing USDe, Ethena also offers a return to its users. This return stems from the protocol's revenue model and is distributed to users specifically through sUSDe. Ethena's revenue sources are quite diverse:

1. Returns from liquid staking assets: Staked ETH or other LSDs that the protocol accepts as collateral generate staking revenue on the underlying Ethereum network. This is one of the most well-known revenue streams in DeFi. This backing makes USDe an LSD-backed stablecoin.
2. Returns in derivatives markets: Perpetual and futures contracts used for delta hedging can generate additional revenue (or costs) through funding rates. Depending on the market, short positions generate income when funding rates are positive.
3. Potential rewards from liquid stablecoins: Where liquid stablecoins such as USDC and USDT are held as collateral, rewards can also potentially be earned, which can increase overall protocol revenue.

The protocol combines these different revenue streams and can distribute the resulting earnings to its users. This is where sUSDe comes in. Users who stake USDe receive sUSDe. sUSDe is the yielding version of USDe and is defined as a “globally accessible dollar savings asset”. sUSDe holders earn rewards by receiving a share of protocol revenue. These rewards are added to the user's sUSDe balance and converted into more USDe. Ethena also refers to USDe and sUSDe as “Internet Bond”. This term refers to a digital savings instrument that is accessible to users anywhere in the world, providing a dollar-denominated return. This provides access to a reliable dollar asset that does not rely on banks, especially for people in areas where banking systems can be unstable.

ENA Token Supply and Distribution

The ENA token supply and distribution form the basis of the project's tokenomics and are important for understanding ENA's role in the ecosystem and its potential value. The total supply of the ENA token was set at 15 billion ENA. The token distribution is as follows:

1. Core contributors: 30% of the total supply. These tokens are subject to a 1-year cliff (no release for a certain period of time) followed by a 3-year linear vesting schedule.
2. Investors: 25% of the supply. These tokens are subject to the same vesting schedule as core contributors.
3. Ethena Foundation: 15% is allocated to the Ethena Foundation. These funds will be used to support initiatives to expand the reach of USDe and reduce reliance on traditional banking.
4. Ecosystem development and airdrops: 30% of the offering is earmarked for ecosystem development and community incentives. This includes activities such as the first 10% airdrop (which may cover Season 1 and 2), cross-chain initiatives and exchange partnerships. These funds will be managed through multisig wallets controlled by a DAO.

Who is the Founder of Ethena?

Another question that follows the question of what is Ethena Labs is who brought this protocol to life. Ethena was developed by a company called Ethena Labs. The question of who founded Ena coin is answered with a clear name: Guy Young. Young is the CEO and founder of Ethena Labs. Guy Young's career history is quite remarkable. He worked in the traditional financial sector (including investment banking, hedge funds and private equity firms) for nearly a decade before stepping into the crypto world. In particular, he worked at Cerberus Capital Management, a $50 billion investment fund from 2016 to 2022, managing the firm's expansion into the Australian market and overseeing strategic investments in areas such as banking, private finance, insurance and fintech. This traditional finance background may explain the emphasis on both risk management and capital efficiency in Ethena's design.

Guy Young's vision is clear: To separate the most important instrument in crypto - the stablecoin - from the banking system. His goal is to create a self-sufficient system in an environment where the most important asset is fully centralized. It's a vision that aims to reshape the financial infrastructure on Web3. Arthur Hayes' article triggered this vision. Ethena Labs is backed by many leading investors in the industry. These investors include Dragonfly Capital, Binance Labs, OKX Ventures, Wintermute, famous crypto figures Cobie, Arthur Hayes and Anthony Sassano, Maelstrom, the family office of BitMEX founder Arthur Hayes, and World Liberty Financial. This strong investor support shows confidence in the project's potential.

Frequently Asked Questions (FAQ)

Below are the most frequently asked questions and answers about ENA coin and Ethena:

• What is the ENA token and what does it do?: ENA is the governance token of the Ethena protocol. It provides voting rights in protocol decisions and plays a role in future protocol developments.
• How the Ethena protocol works: Ethena generates USDe, a collateralized synthetic dollar. It uses ETH and similar assets as collateral, providing price stability with hedged positions.
• How USDe stablecoin stays stable: USDe maintains dollar stability through collateralization and hedging mechanisms. Volatility is stabilized by using long and short positions.
• Is ENA staking possible: Yes, ENA staking is possible. Users can earn returns through staking and participate in governance processes.
• What were the Ethena airdrop conditions? Users had to mint USDe, actively use the protocol and complete certain tasks during the campaign periods.
• Which network does ENA work on: The ENA token runs on the Ethereum network.

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