Ethena (ENA) Price Implodes as Investors Focus on Two Key Risks in the Network

The ENA token crashed to a record low of $0.3508 on Friday, down by almost 70% from its all-time high.

The price of Ethena (ENA) coin has crashed to a record low in the past few weeks as investors focus on two key risks in the network. The ENA token crashed to a record low of $0.3508 on Friday, which is about 70% below its all-time high.

Ethena USDe risks

Ethena is a relatively new platform that is backed by some of the biggest players in the crypto industry, including Arthur Hayes, Dragonfly, Synthetix, and AAVE. Its product is the Ethena USDe stablecoin, which is an algorithmic stablecoin that has over $3.5 billion in assets.

USDe has managed to become the fourth-largest stablecoin in the industry, and this is mostly because of its high yield potential. While the yield tends to vary from time to time, it has remained above 10% since the stablecoin was launched.

USDe generates its rewards through a complicated process that includes staked asset consensus, funding, and basis spread. Its staked asset consensus is derived from staking Ethereum, which is the second-biggest cryptocurrency in the world.

The funding and basis spread, on the other hand, is earned from delta hedging positions when minters provide assets in the process of minting the USDe token. In this process, Ethena opens a corresponding short derivatives position to hedge the delta of the received assets.

This is the first risk that Ethena faces, as it is not clear whether these mechanisms will work effectively during periods of high volatility. Investors will still recall the collapse of Terra, another platform that offered investors thrilling returns in 2022.

If the USDe stablecoin loses its peg, the Ethena price will likely continue to fall.

Dilution to continue

The second key risk to the Ethena price is that the network will likely continue to see more dilution in the next few years. According to CoinMarketCap, the maximum supply of ENA is 15 billion tokens, while the circulating supply is 1.7 billion.

This means that nearly 90% of all tokens are still locked and will be released gradually. According to TokenUnlocks, the recent token unlock occurred on Sunday, and the next one is scheduled for this Sunday, with tokens worth over $5.63 million set to be unlocked.

A significant portion of these tokens will be allocated to Ethena's investors, such as Arthur Hayes and Dragonfly. Usually, these investors tend to be the first to exit after receiving their allocations.

As a result, the ENA price is likely to continue to fall in the coming months as large institutions dump their tokens.