Ethena Labs, the company that developed the synthetic stablecoin USDe, has recommended adding Solana (SOL) to the assets that back USDe. This strategic plan will expand and enhance security to USDe’s collateral. Currently, SOL is awaiting approval as a new investment proposal from Ethena’s Independent Risk Committee.
USDe’s Synthetic Model
Stablecoins like Tether (USDT) and Circle’s USD Coin (USDC) are backed by fiat reserves at 1:1. However, synthetic stablecoins like USDe, which work on a synthetic model, use collateralized stablecoins and a hedged cash–and–carry trade approach to retain its $1 price peg. This approach entails using futures contracts of large notional value to control the stablecoin’s value.
If this proposal is approved, Ethena Labs will be allowed to use $100-200 million in SOL as collateral, or 5-10% of Solana’s global open interest. This is similar to the previous approach that Ethena undertook to ensure that it would use Bitcoin (BTC) and Ethereum (ETH) to back the USDe stablecoin.
Ethena also explores using Solana liquid staking tokens (LSTs), such as BNSOL and bbSOL. These would function similarly to ETH LSTs, which comprise one-third of Ethena’s ETH collateral allocation.
Boost in Collateral
On Thursday, Ethena Labs announced that it will commit $46 million of its reserve fund for USDe to be invested in tokenized real-world assets. The investments include BUIDL of BlackRock, USDM of Mountain, USTB of Superstate, and Sky USDS. This approach aligns with a developing pattern in DeFi of creating earnings from asset-backed tokens.
Ethena (ENA) Witnesses Bullish Breakout, Promising Shift in Market Sentiment
The market analysts are optimistic about the proposition made by Ethena, especially the effects it will have on the price of ENA. On Monday, in an X post, analyst ZAYK Chart pointed out the formation of a bullish price structure for the ENA token. He suggested a breakout could increase prices by 100% and 120%.
$ENA Descending Broadening Wedge Formation in 1D Timeframe✅
Incase of Breakout,Expecting 100-120% Bullish Wave📈#ENA #ENAUSDT #Crypto pic.twitter.com/powjTKANXy
— ZAYK Charts (@ZAYKCharts) October 14, 2024
Increasing Investor Confidence
This positive outlook is based on the belief that SOL will help increase confidence in USDe stablecoin when it is added as collateral. The move is also expected to foster higher market value growth for ENA. As of press time, ENA is valued at $0.3884, which has risen by 14.68% in the last 24 hours.
Since the proposal’s announcement, ENA’s price has been trending upward, reflecting growing investor interest. The Risk Committee’s decision is eagerly awaited, as SOL could solidify USDe’s stability and enhance ENA’s long-term performance in the DeFi market.
