Ethena Governance received a new proposal to build a perpetual DEX based on the USDe stablecoin. The Ethereal Exchange has also promised a 15% commitment of an eventual native token for all current ENA holders. 

A new Ethena Governance proposal proposed the creation of Ethereal Exchange, a spot and perpetual futures DEX. The market will use the upcoming Ethena network and liquidity features, as well as technical support. Ethena Labs has approved the proposal and will open a snapshot vote as of September 30. 

Ethereal Exchange also requested to be linked to Ethena Labs’ reserve management, liquidity, and hedging mechanisms. The new DEX will aim to serve as a settlement layer and boost the use cases for USDe. 

Ethereal DEX raises skepticism over reputation and motive   

The Ethena Labs community expressed some skepticism about the project, requiring a fully named team and their histories before committing. Some may vote against it as they would rather see Ethereal DEX launch as an independent entity before agreeing to share Ethena Labs’ financial stability mechanisms.

The proposal was also written by a newly registered account, ‘Fells0x,’ with a ‘new user’ trust level. The Ethereal DEX project has a limited presence on social media, and the governance proposal is its first connection to Ethena Labs.

Ethereal will aim to become a part of the hedging system, which has the goal of balancing the issuance of USDe. A direct connection would allow Ethereal more control over available USDe liquidity and access to timely redemptions. The new DEX proposed will use Ethena Labs as an incubator, as well as a liquidity provider. 

All holders of circulating ENA tokens will be eligible to receive a 15% share in the event of creating a new Ethereal DEX token. Ethereal will become a native DEX of the Ethena chain, tapping into the available liquidity. Currently, Ethena relies on external DEXs and protocols to popularize USDe, usually with limited pools to avoid contagion.  

The Ethereal DEX proposal will aim for alignment with the Ethena community, which is already used to airdrop incentives. Based on the stability mechanisms of USDe and the liquidity operations of Ethena, the DEX will unlock new potential earnings mechanisms, states the proposal. However, Ethena has remained extremely cautious about using USDe to avoid spreading contagion to other protocols and overly aggressive new printing.

Ethereal will try to use both sUSDe, the token’s staked version, and the freely traded USDe version to create new financial instruments, for trading and passive income. However, the appearance of a new team with no known past and the bold proposal have caused skepticism about the vote and the decision to give the DEX influence over the USDe issuance schedule.

USDe supply stabilizes at a lower level

One of the challenges for Ethena was to balance its USDe issuance and retain enough staked USDe to keep the asset’s dollar peg. Ethena’s USDe asset depends on a generally bullish bias for Ethereum, as the protocol makes most of its funds from supplying liquidity and earning from Ethereum’s funding rate. 

The supply of USDe stabilized, with a balance between staked and free tokens. | Source: Dune Analytics

USDe decreased its supply and stabilized it at around 2.6 billion tokens from a peak of 3.6 billion. At the current ETH price range, USDe has achieved stability. The ratio of staked USDe and free tokens also changed since the correction of ETH prices in August. 

USDe now makes up 58% of all Ethena assets, while sUSDe shifted slightly down to 42%. The staked asset expanded from a share of 13% in May, as trust in the staked version increased.

Staking USDe may include a waiting period of 7 days at the lowest, with waiting times increasing to prevent a run. For that reason, several DEXs are already trading sUSDe for those that want to divest the asset without unstaking it. Most USDe and sUSDe are trading through Balancer, Curve, and pools on Uniswap V3.  

Ethena already locks in $2.543 billion in its vaults, close to the exact amount of USDe outstanding. The asset is collateralized in BTC and supported by Ethena’s insurance fund. 

Ethena Labs recently announced the launch of a new asset, USDb, backed by the BULDL token from Securitize and BlackRock. With this move, Ethena Labs turns to the more secure type of stablecoin backed by US T-bills. The algorithmic USDe and its staked portion are proving more difficult to use among other DeFi projects, especially when serving as collateral. 

Cryptopolitan reporting by Hristina Vasileva.