Ethena (ENA): A New Synthetic Stablecoin Platform Targeting DeFi Infrastructure

Ethena is a DeFi platform that introduces a system of synthetic stablecoins with the aim of offering a stable digital asset, independent of traditional economies and banking systems.

Ethena is a decentralized finance (DeFi) platform that aims to solve the trust and scalability issues inherent in traditional financial systems. The platform introduces a system of synthetic stablecoins, designed to offer a stable digital asset that is independent of traditional economies and banking systems.

Ethena: Solving the Achilles’ Heel of Crypto Stability

The crypto market and decentralized finance (DeFi) face an extremely complex problem on a daily basis: stability. This kind of Achilles’ heel has been both the reason for being and the driving force behind the creation of new solutions. Among them, we find Ethena, a project designed to solve the trust and scalability issues of decentralized financial systems.

In essence, Ethena is a DeFi platform that introduces a system of synthetic stablecoins, with the aim of offering a stable digital asset, independent of traditional economies and banking systems. Its goal is to provide a more resilient and scalable alternative to traditional stablecoins, such as USDT or USDC, which are often subject to centralized regulation and market fluctuations.

Ethena uses a model backed by a variety of liquid assets, which allows it to offer stability while maintaining the inherent flexibility of cryptocurrencies.

The Synthetic Dollar: USDe

The central pillar of Ethena is its stablecoin USDe, which is issued and maintained in a 1:1 ratio with the US dollar. Unlike other stablecoins that are backed by assets of lower liquidity or depend on a simple reserve in a fiat currency, USDe is backed by highly liquid assets such as Ethereum and Bitcoin.

Its multiple backing strategy offers superior stability against market fluctuations, a crucial factor given the high level of volatility in cryptocurrencies.

USDe differentiates itself from other stablecoins by using a ‘mint and burn’ mechanism backed by real assets, not by a simple promise or debt contract. In addition, its system is designed to withstand market disruptions, including negative funding rates that have affected other solutions in the past.

Staking USDe

The protocol allows users to earn rewards through the USDe staking mechanism. This process is controlled by the StakedUSDe smart contract, which users can interact with directly or through the Ethena decentralized application (dApp) interface.

When a user stakes, they transfer USDe to the contract and receive sUSDe (staked USDe) in return, which is another ERC20 token. Over time, additional USDe is transferred into the contract as rewards.

When performing an “unstake,” the sUSDe is burned in exchange for a proportionate amount of USDe, based on the total amount of sUSDe outstanding in relation to the total USDe in the smart contract. Users will receive the principal amount of sUSDe as well as their proportionate share of the deposited rewards when the staking is finalized.

User Workflow

The StakedUSDe smart contract implements the ERC4626 Token Vault standard to ensure composability. This standard is widely used for on-chain reward accumulation, which makes it possible for user interfaces outside of the Ethena dApp to support USDe staking in the future.

The contract exposes various deposit and redemption functions, allowing staking with or without a slippage threshold, and with or without an ERC2612 Permit signature authorizing the transfer of USDe.

It is important to note that there is no minimum staking period. If a user stakes and unstakes in consecutive blocks, they will receive their proportionate share of any increase in the value of USDe invested in the contract that has occurred in that approximately 12-second period.

Since reward payments into the contract occur every 8 hours and are distributed linearly over that time, there are no sudden spikes in the value of USDe invested, which prevents “sandwich” attacks, where an informed staker stakes before a payment and unstakes after, to the detriment of other users.

Security Guarantee for Stakers

Users will never lose USDe when staking. Reward transfers can only be positive into the StakedUSDe contract. Therefore, the value of USDe in sUSDe can only increase or remain stable over time

Ethena’s protocol is based on a delta hedging model that protects the value of USDe against market fluctuations. This strategy allows the system to efficiently manage the risks arising from short positions and funding rates in perpetual futures markets.

While the system has a reserve fund to protect users from adverse situations, its success depends largely on market liquidity and the stability of the backing assets. In fact, Ethena has been explicit about the inherent risks in its model, acknowledging that the possibility of a ‘depeg’ exists if market conditions are excessively volatile for extended periods.

On the other hand, Ethena has implemented a series of safeguards to mitigate these risks. Transaction volume limits per block and a seven-day cooling period for USDe redemption operations have been established. These measures aim to prevent massive withdrawals that could affect the system’s stability in times of high volatility.

Furthermore, the inclusion of Bitcoin