Will ENA's death spiral really come?

I remember when I was doing research on the ENA project, I talked to everyone about this currency. It is really a bit special and polarized.

In fact, its economic model is quite simple, which is to live on arbitrage and funding rates. Let's talk about it briefly. Perpetual contracts have a mechanism, which is to keep the contract price consistent with the spot price.

If there are more buyers than sellers, the buyers have to pay the sellers; conversely, if there are more sellers than buyers, the sellers have to pay the buyers. ENA does this kind of operation, such as buying 100 ETH, and then opening a short position of 100 ETH to hedge.

In this way, no matter how the price jumps, the total funds they invest are stable. As long as the market funding fee is positive, they can keep making money. They have made this model very large-scale. You may find it troublesome to operate it yourself, but if you give them the money, they can help you automatically.

Compared with the traditional arbitrage model, ENA has also made some innovations, such as using stETH and buffer period mechanism. These innovations make it less risky than projects like $luna. However, innovation is innovation, and we still need to understand the essence of this project.

After understanding its economic model, what I am going to say next will be easy to understand. When the Ethereum market is good, the funding rate is always positive, and ENA's arbitrage mechanism can always make money. The better the market, the more people are long, and the more the funding rate is. Reflected in the price of the currency, it is soaring all the way, like a rocket.

However, once the Ethereum market deteriorates and the funding rate becomes negative or very low, ENA will not make money. Because at this time, the shorts pay the longs, and its short orders will always lose money and have to pay the market.

This week, Ethena had negative income for the first time. Now everyone should understand why it has negative income. I saw some bloggers write about $ena and said that the annual interest rate corresponding to the peak of the negative interest rate is as if the project is going to collapse. This is actually wrong. ENA's death spiral is only possible in a long-term continuous decline. In a bull market, the funding rate is mostly positive, so ENA still makes money most of the time, it’s just a matter of how much.At present, it seems that the conditions for triggering a death spiral are far from being met.

Those who are hoarding spot goods in the bull market and hope that the spot goods will double, and those who can't hold on, please click on my avatar and follow me. My bull market strategy deployment will be shared free of charge with fans.

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