What is Ethena?: Investor’s Guide 2025

What is Ethena?

Ethena is a stablecoin project built on Ethereum. Ethena offers USDe — a fully decentralized stablecoin pegged to the US dollar. 

What’s the advantage of Ethena? 

Unlike other stablecoins like USDC and USDT, USDe does not rely on centralized institutions to back up reserves. Instead, USDe uses the cash-and-carry trade (more on this later) to maintain its value with the US dollar. 

USDe may be a better stablecoin option for investors who value decentralization. 

USDe also offers generous staking rewards — over 9% at the time of writing. 

What’s the disadvantage of Ethena? 

Some critics argue that because the project is relatively new, it’s unclear whether USDe’s high yields and peg with the US dollar will hold up in a bear market. 

What is USDe?

USDe is a stablecoin created by Ethena. 

USDe is designed to maintain the same value as the US dollar through a financial mechanism called the cash-and-carry trade. 

Let’s break down how the cash-and-carry trade works, and how USDe offers users yield: 

1. When you mint USDe, Ethena buys Ethereum and takes a short position on Ethereum. This structure is designed so that USDe can maintain value regardless of whether Ethereum’s price goes up or down. 
2. The Ethereum that Ethena purchases is then staked to help offer yield. Ethena also makes money from its Ethereum short position, which collects revenue from the funding rate.

What is ENA?

ENA is the native token of Ethena. 

ENA is used to govern the Ethena protocol. Owning ENA allows you to vote on the operations of the Ethena protocol including risk management, community grants, and project development.

The total supply of ENA is 15 billion tokens, distributed as follows:

• 5% airdropped to early users.
• 30% allocated to ecosystem development.
• 15% to the Ethena Foundation.
• 20% to investors.
• 30% to core contributors.

How does Ethena work? 

Let’s walk through the three most common ways users interact with USDe. 

1. Purchasing USDe: Users can buy USDe by swapping their existing stablecoins (like USDT) through Ethena’s front-end interface or exchanges like Uniswap. 
2. Minting and Redeeming USDe: You can mint USDe by depositing ETH or a liquid staking equivalent like stETH. You’ll be able to redeem USDe for your collateral at any time. 
3. Staking USDe: Users can use Ethena’s decentralized app to stake their USDe and in exchange, receive sUSDe, a liquid staking token. Whenever you want to claim your rewards, you can exchange your sUSDe back to USDe. There is a 7-day waiting period to unstake.

Will Ethena collapse like Terra? 

Ethena has been unfavorably compared to another decentralized stablecoin project: Terra, which supported coins like UST and LUNA. Terra went through a dramatic collapse in 2022, causing investors to lose millions. 

It’s important to remember that Ethena and Terra operate through different mechanisms. 

How did Terra work? 

UST was designed to be linked with the cryptocurrency LUNA. $1 of UST could be exchanged for LUNA at any time. If the value of UST slipped below a dollar, traders could take advantage of the arbitrage opportunity by buying LUNA and exchanging it for UST. 

This setup assumed that LUNA had inherent value. However, once the value of LUNA plummeted severely, so did the value of UST. 

What’s the difference between Terra and Ethena? 

UST’s value was governed by a mint/burn algorithm, where $1 of UST could be exchanged for $1 of LUNA. 

Meanwhile, USDe is backed by hedged derivative positions. Even if the value of Ethereum crashes, Ethena’s short positions in Ethereum should theoretically help USDe maintain its value. 

What are the risks of USDe?

While USDe does not have the same structure as Terra, it does come with other risks. 

1. Bear Market Risk: As mentioned earlier, Ethena has not yet been tested in a market downturn. It’s possible that a severe and sudden crash in the crypto market can disrupt the cash-and-carry strategy and cause USDe to lose value. 
2. Centralized Risk: While USDe isn’t directly managed by a centralized institution, the cryptocurrency still has centralized risk. For example, there are centralized institutions that hold Ethena’s derivative contracts. If these institutions get hacked or go bankrupt, it’s likely that USDe’s value will fall. 

Final thoughts 

Before you get started with Ethena and USDe, it’s important to do your own research and be aware of potential risks. Remember, with any cryptocurrency, you should never invest more than you could afford to lose.