Written by Yangz, Techub News
On June 18, Ethena updated its token economics, planning to introduce a universal re-staking mechanism in the Ethena ecosystem and the upcoming Ethena Chain, and to implement a "lock-up" requirement for any user who obtains ENA through airdrops. Although Ethena said that this move is aimed at reducing the inflation rate of ENA and incentivizing ENA holders to become long-term users, considering that the Ethena team has repeatedly changed the unlocking mechanism of airdropped tokens in the Shard Campaign, the "forced" meaning of this update is very obvious. Some users also pointed out that Ethena's repeated mechanism changes are only to ensure that ENA cannot be sold before it is unlocked by the team and investors. However, even if it is to maintain the value of ENA, this practice is still chilling for users.
Current use cases of ENA in the Ethena ecosystem
Currently, ENA’s use cases in the Ethena ecosystem include:
i) Locking ENA in Ethena to increase potential future returns. The purpose of this is to encourage the transfer of value from more mercenary capital to users who are more beneficial to the long-term development of Ethena. The scale of this reallocation is linear with the amount of USDe held by the user. Therefore, as the supply of USDe increases, the potential demand for long-term consistent ecosystem members to hold ENA will also increase. Currently, ENA's lockup pool holds about 290 million ENA.
ii) Locking ENA in Pendle Finance PT-ENA, users can receive a fixed annual interest rate of about 75% in the form of PT-ENA, YT-ENA buyers can receive point allocations, and only need to hold 1 YT = 1 ENA to meet the minimum ENA holding relative to their USDe holdings. Currently, the PT-ENA pool holds about 160 million ENA.
iii) The next phase of incorporating ENA into the Ethena system and increasing its utility will leverage the universal re-staking pool to stake ENA. The first use case is to provide economic security for cross-chain transfers of USDe, relying on a LayerZero DVN-based messaging system. This is the first of many layers of infrastructure related to the upcoming Ethena Chain and the financial applications built on it that will leverage and benefit from the re-staking ENA module.
More details on the chain can be found in the detailed Ethena 2024 roadmap post.
Currently staked ENA and sUSDe will be the first new assets that can be deposited into Symbiotic, while the initial LST will reach its cap within hours.
Current data on locked ENA is available via the Dune dashboard.
Details of the ENA re-staking module
Ethena will initially work with Symbiotic and LayerZero to pilot the use of a universal re-hypothesis framework to secure cross-chain transfers of Ethena-based assets, including USDe and sUSDe. These transfers are validated through the LayerZero DVN network, which is secured by ENA staked within Symbiotic.
The module will also establish a general framework for LayerZero ecosystem partners to launch re-staked DVNs, leveraging staked tokens to provide economic security and DVN operator selection.
For more details on LayerZero DVN, see the documentation.
While cross-chain transfers based on Ethena will be secured by staked ENA, Ethena will provide a unique value proposition for general re-hypothecation use cases through USDe and sUSDe for other systems and protocols to use as underlying assets.
Compared to using Ethereum as the underlying re-collateralized asset, USDe/sUSDe has two different qualities as an asset that unlock unique potential use cases:
i) Non-correlation: Relatively stable assets “pegged” to the USD are generally uncorrelated with more volatile crypto assets. During periods of slashing, the stability of the USD relative to Ethereum is an important quality in times of stress — when we need the security of re-staking the most.
ii) Sustainable real returns: It is unclear how AVS can provide a true non-inflationary yield on billions of dollars of re-staking capital without providing excessive token rewards that make up the majority of returns. Since its inception, USDe has structurally provided a higher real yield than any USD-based asset, so using USDe uniquely solves this problem because it reduces the need for inflationary rewards and closes the gap in capital costs between re-stakers and the system that consumes security.
Details of rewards for staking ENA in Symbiotic
After ETH LST in Symbiotic reaches its cap in a few days, ENA and sUSDe will become the next eligible assets to be staked in its next phase.
Staking ENA in Symbiotic will earn you the following rewards:
Up to 30 times the points bonus per ENA per day
Symbiotic Points
Mellow Points
Potential future LayerZero RFP allocations (if allocated to Ethena)
The ENA pool will go live on June 26 (next Wednesday).
Staking ENA in Ethena Chain
As detailed in the 2024 roadmap, Ethena Chain will focus on building financial applications and infrastructure on top of USDe as the native gas token and pivot asset within the system.
We believe that crypto-native currencies are the holy grail and the killer app, while the U.S. dollar is the lifeblood of every financial application.
The reimagined ENA will provide universal security for every use case for the following applications:
Spot AMM
Perpetual DEX
Yield Trading
currency market
Low collateral loan
On-chain prime broker
Options and structured products
and on-chain infrastructure solutions such as
Cross-chain transfer
Oracle Providers
Shared Sequencer
Data Availability Solutions
In return, users may be eligible to benefit from potential airdrops on these protocols.
As the ecosystem and use cases around USDe assets grow, ENA’s utility as an asset that helps ensure the security of the ecosystem will also grow.
Update on ENA Locking and Vesting
As of June 17, any user who received ENA via an airdrop (e.g. from the airdrop portion of a Shard event subject to vesting conditions) must lock in at least 50% of their claimable ENA allocation by choosing one of the three options outlined in the first section.
Otherwise, all unvested ENA owned by that user and belonging to the associated wallet will be redistributed to other users who have locked ENA. As more use cases for ENA emerge in the ecosystem, the options for locking ENA for this purpose will also increase.
It should be made clear that the purpose of the above provisions is to incentivize ENA holders to readjust from hired capital to long-term cooperative users.
Instructions for the above will be made clear on June 23rd when users claim their ENA for the following week. From that point on, at least 50% of the newly vested ENA needs to be locked in the above options, otherwise users will lose their unvested ENA.
The foundation, team or investors will not retain any ENA that is not vested due to failure to meet the above conditions, and these ENA will be used entirely to benefit users who match the ecosystem.
Different views on this Ethena update
Regarding Ethena's update, Ignas praised its integration with Symbiotic, saying that Ethena as the most important AVS will enable Symbiotic to surpass Eigenlayer. In addition, this update "also marks a change in the token economics meta: now, each DeFi token can be strengthened by the security of re-staking." Ignas said, "This also means that LRT for DAO tokens such as lrtENA" is possible, and perhaps "Maker should also be launched as an AVS with lrtMKT, or even lrtUNI, etc."
Kairos Research commented, “This is a very interesting move.”
Kairos Research said that first, since its launch in early April, a large portion of ENA has been locked in the protocol's own LP staking contract and Pendle contract, accounting for about 3% of the total supply, or 28% of the current circulating supply. According to on-chain data, the Ethena LP staking contract has only had one large-scale ENA outflow before, totaling about 23 million ENA to a specific wallet, and then sent to Binance's deposit address. This indirectly indicates users' long-term support for the protocol. And with this update to ENA, additional staking channels will also be created for it. Considering that the point reward multiplier will be exactly the same, and Ethena seems to hint that it will provide additional airdrops for future ecological projects, it is conceivable that when the new re-staking contract goes online, some of these tokens will be migrated from the above contracts to the new re-staking contract.
However, Kairos Research also raised its own concerns about the update. Kairos Research said that although the "real return" concept of Symbiotic AVS is cool and Ethena's vertical integration with it makes sense, it is still unknown whether the re-staking of an unstable governance token is the best solution for "security". In addition, although the tokenization of cash and arbitrage transactions helps users access a certain type of return that they cannot access, there is still counterparty risk involved here, which introduces a layer of opacity to the originally transparent protocol. Given that these trading parties are responsible for providing yields, before building an entire ecosystem around the attractive yields provided by the Ethena protocol, Kairos Research recommends that Ethena be formulated to increase transparency and better assess risks around the protocol.
Of course, in addition to Kairos Research's relatively objective evaluation, CT is more about the mechanism of Ethena "forcing" airdrop recipients to lock up their positions. @DarkCryptoLord directly sarcastically said in the comment area, "Is ENA for governance? Before this, I'm not sure if I have seen any voting proposals for this update. Our vested ENA was changed from monthly unlocking to weekly unlocking overnight, and now we are forced to lock up 50%. What is the point of governance tokens?" In addition, there are KOLs who are disappointed with the term "hired capital" used by Ethena. @DefiMoon lamented that "what's worse is that early USDe supporters have now become hired capital."
It remains to be seen whether Ethena’s token economics update will hurt users’ enthusiasm for participating in future ENA airdrops and damage the credibility of the Ethena team. Symbiotic users, on the other hand, may need to worry about whether their points will be diluted by more and more participants.
