Expert points out possible crypto collapse of Ethena Labs

Ethena Labs’ latest strategy in the crypto market is in the spotlight, especially after being listed on Binance.

Ethena Labs decided to use bitcoin as collateral for its synthetic dollar-linked asset, USDe. This raised some eyebrows among experts. With this move, Ethena Labs has plans to increase the USDe supply to 2 billion dollars, while also hoping to take advantage of the bitcoin derivatives markets.

Ethena representatives claim that the use of bitcoin in the USDe product is a strategic move. The developers, who highlight that bitcoin has greater liquidity and profile, believe that the integration of bitcoin into USDe will benefit the product’s scalability.

This isn’t good news for #Bitcoin holders—it sounds like a potential contagion risk, like LUNA. Correct me if I’m wrong. Is it a good news? https://t.co/LjPUUHq15f

— Ki Young Ju (@ki_young_ju) April 5, 2024

Ki Young Ju, CEO of blockchain analytics firm CryptoQuant, was one of the experts who expressed concerns about Ethena’s proposed system. Through X (formerly known as Twitter), Ki Young Ju compared Ethena Labs’ product to the collapse of the Earth and stated that the risk management strategy used by the project does not inspire confidence.

The CEO of CryptoQuant argued that the management mentioned by Ethena Labs would not be sustainable in bear markets – when there is a moment of pessimism and the price of most assets follows a prolonged downward movement -, suggesting that this system could be successful mainly in market conditions bullish – when the price of assets is rising.

Bull market is the term used to refer to a market at a pessimistic moment, that is, when the price of the vast majority of assets follows a prolonged downward movement.

In comparison with Terraform Labs, Ju recalled that USDe is a decentralized stable cryptocurrency and expressed concern about a collapse similar to that of LUNA. He mentioned that if the market reflects bearish conditions, the algorithm could fail and it would be necessary to sell bitcoin to balance USDe, which is equivalent to the problem faced by the Terra ecosystem with the UST cryptocurrency.

Despite market concerns, Ethena Labs is confident in the fundamentals that support its strategies, highlighting the growth of bitcoin derivatives markets as justification for its decision.

Earlier this week, Ethena Labs’ native asset ENA began trading on exchanges centralized and saw a 340% increase to US$1.32 in the first 2 days, before entering a downtrend to US$0.92 since Thursday (April 4, 2024).

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With information from Investing Brasil.