Athena just launched with a market cap of $1.2 billion — here’s what you need to know

Athena Labs has announced the launch of its management token $ENA and its production stablecoin, the synthetic dollar token USDe. The upcoming debut has received a lot of attention, including praise from former BitMEX CEO Arthur Hayes among other crypto enthusiasts. But it has a complicated back story.

Etena said it will use this new token to make it more decentralized, accessible and secure. The company has released 5% of the total $ENA supply to all USDe and sUSDe holders as part of its Season 2 campaign, which will last for five months.

But Athena was embroiled in controversy when a press release in February revealed it had raised millions from prominent investors. In a now-deleted tweet, Athena said the leak was incorrect, and the team later told Coindesk it was a “genuine mistake.”

Meanwhile, the coin's approach is considered very risky, especially since the crypto community is still feeling the effects of the collapse of the Terra ecosystem. Some experts say that the Etena protocol itself has some flaws.

However, all that controversy still wasn't enough to dampen investor interest. Since its launch, the coin has amassed enough market capitalization to claim the 80th most valuable cryptocurrency in the ecosystem with a total market capitalization of $1.2 billion according to CoinCo.

Before you jump on the ESA train, it's best to understand its intricacies. The protocol approach makes USDe creation, redemption and stability verification complex and DYOR ethics difficult for beginners. Hopefully, we can help.

Beyond the audience

ENA is the governing symbol of Etna, the DeFi protocol behind the USde stablecoin. Those who own $ENA have the right to decide the future of the protocol, just like shareholders decide the future of a company.

The foundation of the protocol is based on the creation and redemption of USDe—a process in which users convert their cryptocurrency into USDe stablecoins, aiming to maintain a stable peg with the US dollar. This process is necessary to ensure that USDe can serve as a reliable means of exchange in the volatile crypto market. Etena supports Ethereum and Staked Ethereum (a version of Ethereum that is locked to support the network's operations and receive rewards in return) that each USDe is backed by a tangible asset. But unlike Tether or Circle, these tangible assets are not real dollars. It is stored in a bank account. Instead, they are cryptocurrencies locked in pools.

Given the volatile nature of crypto, this system introduces multiple layers of risk—mainly around the protocol's dependence on the volatile Ethereum value. The protocol's stability hinges on a strategy known as delta hedging—a method of reducing or hedging the amount of money an investment can lose due to changes in the market.

Athena uses delta protection to maintain the USDe stablecoin price regardless of Ethereum price movements. If the price of Ethereum increases, the value of Ethena's Ethereum holdings will increase, which is good. But to avoid risks if the price drops later, Athena sets up special derivatives contracts that decrease in value when the price of Ethereum rises – also known as a short position. This may seem like a loss, but if the price of Ethereum falls further, these contracts should gain value, which should decrease the value of the holdings of Ethereum.

According to Etena, Delta hedge contracts represent approximately 15% of all ETH open interest.

Athena regularly adjusts these contracts to match the current market, while USDe operates an ever-adaptive safety net to maintain stability. This can be very risky and complex to maintain over time, which is why a management token is needed in case of emergencies. Changes in strategy are needed.

Athena framework

All of this is called Etena Off-Exchange Settlement (OES), a system that allows Etena to control its assets without placing them on the exchange, which reduces the risk of hacking or conversion. The price of the protocol is determined by an internal system that evaluates the holding and hedging prices of various trading venues, which ensures that the creation and redemption price of USDe is always fair and reflects the true market value of the asset.

Centralization and decentralization are seen as opposites in the blockchain world, but Etena plays with both: certain aspects of the protocol are managed by a central entity for efficiency and reliability, while others are distributed across the blockchain for transparency and security. . This balancing act allows Etena to leverage the strengths of both worlds—centralized exchanges for liquidity and decentralized for user management.

However, the OES system makes the fluid handling process more complicated than usual. The timing of transfers between custodians and exchanges, the need to manage relationships with multiple OES providers, and coordinating operations across multiple platforms are all challenges Etena must address.

Etena plans to expand its scale by increasing the types of collateral and expanding its presence across different blockchain ecosystems, but this makes the protocol difficult to understand.

If all this sparks the geek in you, you can buy and trade $ENA on Binance, Bybit, Kucoin, Gate.io and HTX. It is also available on decentralized exchanges, and you can farm by depositing tokens on Binance Launchpool and Bitget Launchpool.

Edited by Ryan Ozawa.