Business Analysis of Ethena: After a big dump of 80%, is ENA worth buying?

Ethena is one of the few phenomenal DeFi projects in this round of the cryptocurrency market, with its token's circulating market cap once exceeding $2 billion after its launch. However, since entering April this year, its token price has rapidly fallen, with Ethena's circulating market cap retreating by more than 80% from its peak, and the token price retreating by as much as 87%.

Since entering September, Ethena has accelerated its collaboration with various projects, expanding the use cases of its stablecoin USDE. The scale of the stablecoin has also begun to bottom out and rebound, with its circulating market value rising from a low of 400 million USD in September to around 1 billion USD currently.

1. Business Level: Ethena's current core business situation

1.1 Ethena's business model

Ethena positions itself as a synthetic dollar project with "native yield", belonging to the same stablecoin track as MakerDAO, Frax, crvUSD, GHO, and others.

Ethena's business model is similar to other stablecoin projects:

1. Raise funds, issue debt ( stablecoins ), expand the project's balance sheet.
2. Utilize the raised funds for financial operations to obtain financial returns

When the income generated from the operation of the project exceeds the total costs incurred in raising funds and running the project, the project is profitable.

1.2 Core business data of Ethena

1.2.1 USDE issuance scale and distribution

The issuance scale of USDE, after reaching a new high of 3.61 billion in early July 2024, has continued to decline and is currently gradually rising, standing at approximately 2.72 billion as of October 31. Among them, 64% of USDE is in a staked state, with the corresponding APY currently at 13%.

Most users hold USDE to obtain financial income, with 13% being the "risk-free return" denominated in USDE, which is also the financial cost that Ethena currently incurs to raise user funds.

1.2.2 Protocol revenue and underlying asset distribution

Ethena currently has three sources of protocol revenue:

1. The income from the staked ETH in the underlying assets.
2. The funding rates and basis income generated from derivatives hedging arbitrage.
3. Financial income: Hold in the form of stablecoins to earn deposit interest or incentive subsidies.

According to Token terminal data, Ethena's revenue has recovered from last month's low over the past month, with protocol revenue in October amounting to $10.63 million, a month-on-month increase of 84.5%.

From the perspective of Ethena's underlying assets, 52% are BTC arbitrage positions, 21% are ETH arbitrage positions, 11% are ETH staking asset arbitrage positions, and the remaining 16% are stablecoins. Therefore, Ethena's main source of revenue currently comes from BTC-dominated arbitrage positions.

1.2.3 Ethena's protocol expenditures and profit levels

Ethena's protocol expenses are divided into two categories:

1. Financial expenditure: Payment via USDE, the payee is the staker of USDE.
2. Marketing Expenses: Paid through ENA tokens, the payment is for users participating in various growth activities of Ethena.

Since its launch this year until now, on October 31, (, the total expenditure of the Ethena protocol is:

• Financial expenditure: 81.647 million USD
• Marketing Expenses: $910 million ) This does not yet account for potential expenses after September (
• Total protocol revenue during the same period: $124 million

This means that Ethena's net loss has reached as high as $868 million by the end of October this year. This is the price of achieving a market capitalization of $2.7 billion for USDE within a year.

![Business Analysis of Ethena: big dump of 80% followed by Rebound, is ENA worth buying?])https://img-cdn.gateio.im/webp-social/moments-30c59ac4ff15de2d16c1b215b1ab24e3.webp(

2. Future Business Outlook: The Promising Narrative and Future Development of Ethena

Ethena's directions worth looking forward to in the next few months to a year:

1. With the rising expectations of Trump's ascendance to power and the Republican victory, the bullish crypto market benefits the perpetual arbitrage yields and scale of BTC and ETH, increasing the protocol revenue of Ethena.
2. More projects emerged within the Ethena ecosystem after Ethereal, increasing ENA airdrop income.
3. The public chain operated by Ethena goes live, bringing attention and staking and other nominal scenarios to ENA.

However, for Ethena, the most important thing is that USDE can be accepted as collateral and trading assets by more leading exchanges.

![Business Analysis of Ethena: big dump of 80% followed by Rebound, is ENA worth buying?])https://img-cdn.gateio.im/webp-social/moments-35baacb13b3a08e2f9bca467d318cddf.webp(

3. Valuation Level: Is the current price of ENA in the undervalued hitting zone?

) 3.1 Qualitative Analysis

Events that are favorable to the price of the ENA token and are likely to occur in the coming months include:

• The increase in arbitrage profits brought about by the recovery of the crypto market.
• Incorporate SOL into the underlying assets to attract the attention of SOL ecosystem investors and project parties.
• The Ethena ecosystem may see more projects emerge, bringing more airdrops for ENA.
• The project party has the motivation to pump the coin price.

Currently, the factors that are detrimental to the value of the ENA token and suppress its price include:

• ENA lacks real monetary profit distribution
• The real profit situation of the Ethena project is not good, with significant net losses.
• ENA still faces significant inflation pressure in the next six months.

3.2 quantitative comparison

Compared to MakerDAO, Ethena's token ENA currently does not offer cost-effectiveness in terms of protocol revenue or profit at its current price.

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Summary

Although many people refer to Ethena as a highly representative innovative project in this round, its core business model is no different from other stablecoin projects. At the current stage, Ethena, which is in the early promotion phase of stablecoins, is still in a stage of huge losses, and its valuation is not underestimated compared to the representative stablecoin project MakerDAO.

However, as a new player in this field, Ethena has demonstrated a very strong business development capability. Rapid scale expansion and more project adoption will enhance investors' and researchers' optimistic expectations for the project, thereby driving up the coin price, and the rising coin price will bring higher APY, further boosting the scale of USDE, creating a rising spiral.

Then, such projects will eventually face a critical point where people begin to realize that the growth of the project is driven by token subsidies, and the price increase of the newly issued tokens seems to be supported only by optimistic sentiment, lacking a tie to value.

Stablecoins, as a product with a significant Lindy effect, Ethena and its USDE still need more time to verify the stability of their product architecture and their survival capability after the subsidy reduction.