With an increase of nearly 50% in a week, will ENA be the biggest Beta for ETH?

Original | Odaily Odaily Daily Report (@OdailyChina)

Author | Azuma (@azuma_eth)

ETH has finally strong!

As the "shanzhai leader" ETH continues to surge, there are signs of recovery in the altcoin market. Ethereum ecosystem mainstream projects such as Ethena (ENA), Lido (LDO), Curve (CRV), and Frax (FRAX) have seen even greater gains, with ENA briefly breaking through 0.5 USD in the short term, and a weekly increase of nearly 50% (this is based on ENA's previous surge over a week ago after its listing on Upbit), standing out among several so-called "ETH beta" projects.

Regarding the reasons for ENA's strong rise, after comprehensive analysis from various parties, we believe it can be summarized into the following four main reasons.

Reason 1: ETH Boosts

First of all, the vast majority of Ethena's business is still focused on the Ethereum ecosystem (a small portion of USDe has flowed into ecosystems like Solana through cross-chain means), and Ethena is also one of the few star projects that has emerged from the Ethereum ecosystem in the past two years, so it is not an exaggeration to say "Ethereum offspring."

Similar to the currencies mentioned earlier like LDO and CRV, the rise of ETH will inevitably boost mainstream ecological projects of this kind, which is an essential prerequisite.

However, this does not explain why ENA has been leading the "Ethereum concept coin" recently; the real reasons are still the following three points.

Reason 2: Business Model Returns to Positive Flywheel

To understand this reason, one needs to first write about Ethena's business model.

In short, Ethena is an income-generating stablecoin project focusing on "cash-and-futures arbitrage," and its stablecoin USDe will be collateralized by an equal amount of spot longs and contract shorts. Its revenue mainly comes from the "staking yield of the spot longs" and the "funding fee yield of the contract shorts," where the volatility of the first revenue source is relatively small, while the second revenue source is key to the operation of the protocol.

The funding rate of the contract depends on the market's long and short game, which itself has a high degree of uncertainty. Although in the long run, the time when the funding rate is positive will account for the majority (i.e., overall, contract shorts will gain positive rate income), when market sentiment is pessimistic, the rate will continue to decline and may even show negative values - this will severely affect Ethena's protocol revenue capability, and may even result in short-term losses.

• Odaily Note: For basic concepts of Ethena and the impact of rate fluctuations, please refer to "An Analysis of Ethena Labs: Valued at $300 Million, the Stablecoin Disruptor in Arthur Hayes' Eyes" and "After the Plunge, How Does Ethena (USDe) Perform Under Negative Rates?".

For a relatively long period of time, due to the overall market sentiment being not optimistic enough, the fee rates in the futures market remained low, which also led to Ethena's protocol revenue levels and sUSDe (the interest-earning version of USDe after staking) yields being less than ideal for a long time.

However, recently with the rapid warming of the market (especially as the price of ETH rises, since ETH is the main target for term arbitrage of Ethena), the level of contract rates is also continuously climbing — The Ethena page shows that the current average annualized rate of this protocol is about 16%.

The yield in the rate market directly affects the yield of sUSDe. In the past two weeks, the average yield of sUSDe has increased from around 5.59% to 9.74%, which has also directly attracted more capital inflow — On-chain data shows that the issuance scale of USDe has grown to approximately 6.1 billion USD, setting a new historical high.

In short, this is a positive flywheel: Market recovery ➡️ Long bullish sentiment rises ➡️ Fee income increases ➡️ Stablecoin yields improve ➡️ Increased capital inflow ➡️ Growth in stablecoin issuance scale ➡️ Improvement in protocol fundamentals ➡️ Stronger support for coin price……

The diagram below can more intuitively present this logic, as there is a clear synchronization between the price fluctuations of ENA and the changes in the contract size of ETH.

Reason 3: The stablecoin bill has been passed, which is a positive for the entire sector.

Another major benefit for Ethena recently is the passage of the stablecoin bill.

At 12 a.m. Beijing time on July 19, U.S. President Trump officially signed the "GENIUS Act" in the East Room of the White House, which means that this bill focusing on the development of the stablecoin industry has completed all legislative processes and has officially become a law pending enactment.

• Odaily Note: See "Historic Moment: Trump Officially Signs the GENIUS Act."

Although USDe may not meet the requirement in the "GENIUS Act" that stablecoins must be fully backed 1:1 by US dollars or other highly liquid assets in its collateral structure, Ethena has long been prepared accordingly — at the end of last year, Ethena launched a new stablecoin product USDtb supported by BlackRock BUIDL, which will be backed by cash or cash equivalents at a 1:1 ratio. As of the time of this writing, the issuance scale of USDtb has also grown to 1.46 billion dollars.

In simple terms, the current Ethena is like walking on two legs, with USDe focusing on the native cryptocurrency market and USDtb focusing on the compliant institutional market.

Reason Four: ENA's "Fee Switch" Expectations

The potential activation of the "fee switch" is another reason for ENA's recent rise. The so-called "fee switch" is a common term in DeFi protocols, referring to whether the protocol's revenue is allocated to the native token of the protocol (in this context, ENA). If this switch can be turned on, it will directly boost ENA's value capture ability.

In the previous community vote, Ethena clearly stated the five conditions for activating the "fee switch", as follows.

• ✅USDe Circulation: Requirement exceeds 6 billion USD, currently at 6.1 billion USD, standard met.
• ✅Cumulative Protocol Revenue: Required to exceed 250 million USD, currently at 431.31 million USD, has met the target.
• ❌Exchanges Adopted: Require USDe to be listed on 4 exchanges that rank in the top 5 for derivatives trading volume; currently, there are 3, not meeting the standard.
• ✅Reserve Fund: Requires a USDe supply of over 1%, and the target has been met.
• ❌The yield spread of sUSDe against the benchmark interest rate: requires 5.0-7.5%, currently the spread against Aave USDC is 3.03%, against U.S. Treasuries is 2.48%, and against sUSDS is 2.05%, not meeting the standard.

As can be seen, three out of the five requirements are already met. Considering the recent trend of rising rates, the yield of sUSDe is also increasing, which will help in meeting the fifth condition, and there is only one exchange left to integrate for the third requirement.

It seems that the activation of the "fee switch" is not far away, and the market may choose to bet in advance at this time.

Will ENA be the biggest Beta for ETH?

In addition to the aforementioned reasons, another point to note is that when ENA was previously above the high of 1 dollar, BitMEX founder Arthur Hayes seemed to be quietly replenishing his position while "buying the dip." On-chain analyst Yu Jin monitored last week that Arthur purchased a total of 1.505 million dollars worth of ENA through multiple channels in one day.

Arthur said that not everything can be fully trusted, but what he did still has some reference significance...

• Odaily Note: You may refer to the reading "When Arthur Hayes Suddenly Endorses the Coin You Bought, You Should Be Careful."

Considering the above several reasons, it can be anticipated that the fundamental growth trend of ENA and the expectation of value capture will continue in the upcoming period, which may support the continuation of its current price trend. At a time when ETH is gaining momentum, ENA may be a potential Beta choice.