Ethena's ENA airdrop successful as USDe token sparks debate in crypto community

Ethena (ENA) recorded a 29% increase on Wednesday after the airdrop of its governance tokens to users. However, the method applied to maintain its USDe synthetic dollar token is causing a stir in the crypto community.

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Ethena's ENA soars after launch

Ethena has witnessed tremendous growth after the airdrop of its governance token to users on Tuesday. The token also went live for trading on top cryptocurrency exchanges like Binance, Bybit, OKX and MEXC. Since its launch, ENA's price has grown more than 100%.

The cryptocurrency, which debuted on exchanges near $0.640, has captured the attention of investors, reaching an all-time high of $1.297 on Wednesday before settling around $1.112 as of the time of writing.

ENA has also blown past many cryptocurrencies in the top 100 category, as its market capitalization has grown to $1.72 billion, with a fully diluted valuation of about $17.2 billion.

Ethena's on-chain metrics also align with its price growth, as its total value locked (TVL) has increased more than 2,100% since the beginning of the year, according to data from DeFiLlama. One of the major reasons for its TVL rise is the high yield of about 27.6% offered on Ethena's flagship product, USDe.

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USDe's high yields may not be sustainable

According to Ethena, USDe is a synthetic dollar cryptocurrency that maintains its price peg to the US dollar by holding staked Ethereum (ETH) and then delta hedging it with short positions of ETH on centralized exchanges. As a result, its high-yield offerings come from yields earned on the staked Ethereum and funding fees received from the short positions.

However, debates ensued in the crypto community after a proposal on MakerDAO to allocate 600 million DAI - its crypto-collateralized stablecoin - to USDe through the DeFi protocol, Morpho Labs.

Following the announcement, Aave co-founder Marc Zeller took to X to express his concern, terming the move "the definition of reckless," due to his perception of USDe. Shortly after, the Aave Chan Initiative (ACI) proposed that DAI's loan-to-value ratio (LTV) on Aave be reduced to 0%.

Another X user, @Tardfiwhale, who also called out flaws in UST, has made several posts suggesting USDe has many flaws in its design and yield generation process.

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Although one of its early-stage investors, Arthur Hayes, co-founder of BitMEX, has stated that USDe's design is superior to USDe, many are still expressing concerns.

DeFi solutions architect Andre Cronje made an X post on Wednesday that questioned the long-term viability of USDe after citing potential flaws in its delta hedging methods. He mentioned that "while things are going great now (because market is positive and shorting funding rates are positive [because everyone is happy being long]), eventually that turns, funding becomes negative, margin/collateral gets liquidated, and you have an unbacked asset."

Guy Young, founder of Ethena Labs, responded to the post on X by acknowledging the concerns raised by Cronje, stating he would share his thoughts extensively later in the week.