Business Analysis of Ethena: After a big dump, is the Rebound of ENA worth buying?

Ethena is one of the few phenomenal DeFi projects in this cycle, with its token's circulating market cap once exceeding 2 billion USD after its launch. However, since entering April this year, its token price has rapidly fallen, with Ethena's circulating market cap retracting more than 80% from its peak, and the token price retracting as much as 87%.

Since entering September, Ethena has accelerated its collaboration with various projects, expanding the use cases of its stablecoin USDE. The scale of the stablecoin has also begun to bottom out and rebound, with its circulating market value rebounding from a low of 400 million USD in September to around 1 billion USD currently.

This article will focus on the following three issues:

1. Current business level: The current core business indicators of Ethena, including scale, revenue, overall costs, and actual profit level.
2. Future Business Outlook: The Promising Narrative and Future Development of Ethena
3. Valuation level: Is the current price of ENA in the undervalued hitting zone?

1. Business Level: The current core business situation of Ethena

1.1 Ethena's business model

Ethena positions itself as a synthetic dollar project with "native yield", belonging to the stablecoin sector. Its business model is fundamentally similar to other stablecoin projects:

1. Raise funds, issue debt (stablecoins), expand the project's balance sheet
2. Use the funds raised for financial operations to obtain financial returns.

As a latecomer stablecoin project, Ethena is at a disadvantage in terms of network effects and brand credibility, which is specifically reflected in its higher fundraising costs. Ethena's approach is to raise funds by providing users with incentives in the form of project tokens ENA, as well as the yields from the stablecoin.

1.2 Ethena's core business data

1.2.1 USDE issuance scale and distribution

As of October 31, the issuance scale of USDE is approximately $2.72 billion, with 64% in a staked state, and the current corresponding APY is 13%.

Most users hold USDE for the purpose of obtaining financial income. 13% is the "risk-free return" based on USDE, which is also the financial cost Ethena currently incurs to raise user funds.

USDE is not only issued on the Ethereum mainnet but also expanded on multiple L2 and L1 networks. Currently, the scale of USDE issued on other chains is 226 million, accounting for about 8.3% of the total.

1.2.2 Protocol Revenue and Underlying Asset Distribution

Ethena currently has three sources of protocol income:

1. The income from the staked ETH in the underlying assets
2. Funding rates and basis income generated from derivatives hedging arbitrage.
3. Investment income: Hold in the form of stablecoins to earn deposit interest or incentive subsidies.

According to data from Token Terminal, Ethena's revenue has rebounded from last month's low, with protocol revenue of $10.63 million in October, a month-on-month increase of 84.5%.

From the perspective of Ethena's underlying assets, 52% is BTC arbitrage positions, 21% is ETH arbitrage positions, 11% is ETH staking asset arbitrage positions, and the remaining 16% is stablecoins.

1.2.3 Ethena's protocol spending and profit levels

Ethena's protocol expenditures are divided into two categories:

1. Financial expenditure: Paid to USDE stakers through USDE.
2. Marketing expenses: Paid to users participating in various growth activities of Ethena via ENA tokens.

According to rough calculations, the total protocol expenditure of Ethena since its launch this year (up to October 31) is as follows:

• Financial expenditure: $81.647 million
• Marketing expenses: $910 million (this does not yet account for potential expenses after September)
• Total protocol revenue during the same period: $124 million

In other words, Ethena's net loss has reached as high as $868 million by the end of October this year. This is the cost of achieving a market capitalization of $2.7 billion for USDE in one year.

2. Future Business Outlook: The Promising Narrative and Future Development of Ethena

The exciting stories for Ethena in the coming months to a year include:

1. With the warming expectations of Trump's ascension and the Republican victory, the bullish trend in the crypto market benefits the perpetual arbitrage yields and scale of BTC and ETH, increasing Ethena's protocol revenue.
2. More projects have emerged within the Ethena ecosystem after Ethereal, increasing ENA airdrop income.
3. The public chain operated by Ethena has launched, bringing attention and staking and other nominal scenarios to ENA.

However, what is most important for Ethena is that USDE can be accepted as collateral and trading assets by more leading CEX.

3. Valuation level: Is the current price of ENA in the undervalued hitting zone?

3.1 Qualitative Analysis

Events that are favorable to the price of the ENA token and have a high probability of occurring in the coming months include:

• The arbitrage profits from the rebound of the crypto market are increasing
• Incorporate SOL as a base asset to attract the attention of SOL ecosystem investors and project parties.
• The Ethena ecosystem may have more projects emerging, bringing more airdrops for ENA.
• Before the next wave of large ENA unlocks, the project team has the motivation to raise the coin price.

Currently, the factors that are unfavorable to the value of the ENA token and suppress its price include:

• ENA lacks the distribution of real monetary gains.
• The actual profitability of the Ethena project is not good.
• ENA still faces significant inflationary pressure in the next six months.

3.2 quantitative comparison

Comparing Ethena with MakerDAO, it can be seen that Ethena's token ENA lacks cost-effectiveness in terms of protocol revenue and profits at the current price.

Summary

Although Ethena is known as a highly representative innovative project in this round, its core business model is no different from other stablecoin projects. Currently, Ethena is still in a stage of massive losses, and its valuation is not undervalued compared to the representative stablecoin project MakerDAO.

However, Ethena has demonstrated very strong business development capabilities, being more aggressive than other projects. Rapid scale expansion and more project adoption may boost investors' optimistic expectations for the project, thereby driving up the coin price.

However, such projects will eventually face a critical point where people begin to realize that the growth of the project is driven by token subsidies, and the rising prices of the newly issued tokens seem to be supported only by optimistic sentiment, lacking a value peg.

Stablecoins, as a product that shows a significant Lindy effect, still require more time to validate the stability of their product architecture, as well as their survivability after the subsidy decreases, for Ethena and its USDE.