Some people are concerned about whether ENA will reach 10u or 100u. But predicting the market is meaningless. As for how to value ENA, I think we should not simply treat it as an ordinary project to value and predict it, but to find something more special among the 99% of air projects in the currency circle.
1. Binance’s hegemony closed loop
Is the stablecoin business profitable?
Tether, the company that issued USDT, does not use advertising, does not engage in KOL rounds, and does not care about the community. It seems that it "does nothing" and has an annual income of 6.2 billion US dollars...
In the long run, in the cryptocurrency world, the first money-making business is exchanges, and the second money-making business may be stablecoins rather than public chains.
Binance is the strongest in the exchange business, and it is forming an increasingly larger network effect: listing coins one after another puts enormous pressure on other exchanges. If I were in an exchange, I would definitely be so angry that I would have backaches and stomachaches — — Its positive spiral in the bull market is really terrifying: leading investments in excellent projects, formulating issuance rules, and providing benefits to users. After the launch, the projects take off, users benefit, and Binance continues to grow.
This kind of positive network effect is quite terrifying, at least in the bull market and in the short term, it is incomparable to anything else.
As strong as Binance is, it lacks an important link in its grand plan — — stablecoin business.
In the past, Binance's busd was once extremely large in scale, but was later forced to cease operations due to pressure from the United States.
But Binance has always paid close attention to this business, because it is a commission-based business like that of exchanges, with huge and stable profits, and the scale effect is invincible, that is, the larger the scale, the greater the efficiency, and the more difficult it is to defeat.
So, after busd was taken off the shelves, a small project called lqty was suddenly listed on Binance. I was quite impressed because that project was actually quite ordinary. If it weren’t for Binance’s obsession with stablecoins, it would have been very difficult to be listed on Binance.
Now, FDUSD is supported and has a 0 fee rate, but for a stablecoin to form a network effect, it cannot do without widespread and comprehensive adoption, so FDUSD is not supported.
what to do?
Logically speaking, the stablecoin business should better attract more American forces to join in, so as to avoid bearing the compliance pressure after FTX alone; it should be different from all the current stable and centralized USDT and USDC, because the existing stable coins are too difficult to follow, countless ideas have failed, and there is no new thing at all — — and among all the innovations, only high returns are the most irresistible. Behind Binance’s pad/pool gameplay, they are well aware of this.
As for centralized services like USDT and USDC, no matter how strong Binance is, it is impossible for it to do so.
A few months ago, @CryptoHayes’s article about stable calculation in the context of perpetual contracts came out of nowhere. Perhaps, just like the perpetual contracts that are unique to the cryptocurrency world, the emergence of this high-yield stablecoin is somehow inevitable — — the inventor of the perpetual contract, after going through many ups and downs, continued the story of the funding rate, which is the innovative soul of the perpetual contract, with the second half.
No matter how strong USDT and USDC are, they are just tools, and Binance will not benefit much from them. However, as Binance's industry status improves, who will rely on whom in the end? With such a good business model, I am just your platform, which is really unscientific.
However, ENA and the USDE in the ENA project are different. It is natural for Binance to benefit from it as an investor. As USDE grows stronger in the future, it is reasonable for Binance to become the biggest beneficiary as the main usage scenario.
Therefore, USDE's high yield drives rapid expansion; decentralization is more widely adopted; high returns and funding rates become DeFi infrastructure.
2. Investment Logic: Liquidity First
For the same project, the traffic and valuation may differ 10 times depending on whether it receives investment from Binance or not. This 10 times difference can sometimes even mean the difference between life and death for a project.
Because Binance can provide the liquidity and attention that any project needs.
From the perspective of project investment research, I recently stated that my investment system has evolved and is now simplified to one sentence: "Liquidity First". The liquidity I am talking about is not the pool size and transaction depth in the general sense, but a comprehensive indicator: the superposition of all factors such as narrative, attention, airdrops, etc.
So, for example, if you ask me which of the two projects, Pendle and ENA, is better, my answer is very simple, these are not projects of the same level at all, the magnitude difference is huge.
This is not to say that Pendle is bad, on the contrary, Pendle is one of the protagonists in this round of bull market, with excellent products, extremely fast innovation and iteration, it is not an exaggeration to call it a top project in the cryptocurrency circle. It is compared here only because it is easier to understand why I said at the beginning, "Don't simply treat it as an ordinary project to value and predict it."
Let’s make a simple comparison from the perspective of “liquidity”:
ENA VS Pendle
Narrative: Decentralized Stablecoins vs. Top Infrastructure in the Points War
Mechanism: Extreme Ponzi scheme vs. high and rich profit gameplay
Users: high-end players, arbitrage institutions, multi-party contracts, retail investors with high interest rates VS professional DeFi players
Background: A combination of East and West, inside and outside the circle. The sponsor VS Binance also invested
"It is better to be vaguely right than precisely wrong." This framework is just a simple list to help you understand that from the perspective of "comprehensive liquidity", ENA can be said to be the strongest - this may also be why in Binance's USDT trading pair, ENA has always maintained a top 3-top 5 relationship in trading volume.
Note: I am discussing the size of the narrative, not which one has increased more. That is not the scope of my research. Buy whichever one you like, and don’t let my content influence your decision - after all, there are too many factors to consider when it comes to price increases and decreases.
Next, we will have some detailed discussions from this framework perspective.
3. Narrative is an economic act
Narrative Economics by Nobel Prize winner in Economics Robert Shiller is my favorite book. He emphasizes a point: narrative is an economic behavior!
Good business narratives can be used by all parties involved and ultimately change people's cognition and behavior, promote the popularity of business models, and even influence the policies of many countries.
In the book, he cited the example of Bitcoin, arguing that this is a successful case driven by narrative: the technology behind Bitcoin is not cared about by many people today, such as elliptic curve encryption, Merkle tree, etc., and not many people will care about it in the future.
But people care about many narratives: decentralization, fighting inflation, fighting fiat currency, storage of value, and so on.
Old narratives die and new narratives arise, but it is always narrative that leads the way forward.
Narrative is powerful.
The biggest strength of the cryptocurrency world is decentralization.
The first holy grail of decentralization was Bitcoin.
The second holy grail of decentralization is stablecoins.
In all the narratives of Bitcoin, the core is decentralization. This has become the strongest consensus - so much so that after ETH switched to POS, some people still called for a return to the POW mechanism because it is more decentralized, etc.
Decentralization is the consensus of everyone in the cryptocurrency circle: decentralization is good and right, while non-decentralization is not so good and wrong.
Decentralization is the first consensus in the cryptocurrency world—it gave birth to Bitcoin.
Decentralized stablecoins are the second largest consensus in the cryptocurrency circle: a decentralized cryptocurrency circle naturally craves for a decentralized stablecoin: using centralized stablecoins in the cryptocurrency circle is bad and wrong; decentralized stablecoins are good and right!
This second consensus is the source of Luna’s market value of hundreds of billions in the last round. This is the reason why its earnings are not transparent and not public, and its mechanism has huge risks no matter how you calculate it, but it is still fomoed.
ENA is not so decentralized? Is it related to centralization? Fortunately, the mechanism is well done. This little flaw is no longer a problem in front of the high return of 35%. Who would dislike Jennifer Lawrence because she has freckles?
If you understand the power of narrative and the narrative of decentralization, you will find that public chains, cross-chains, dex, lending, and NFTs are far less sexy than this. This can actually explain why, among all the projects listed on Binance, ENA has always been at the forefront in terms of trading volume, while projects like W also have high financing, but the attention is far less - just because the underlying narrative is different.
But ENA's popular science education may have just begun. Don't forget that this project was only launched not long ago.
4. Mechanism and User FOMO
People come for money, but also for ideals——V God talks about the cryptocurrency world.
A good narrative is often idealistic, but the attraction of money is pragmatic. More than 10 years ago, if someone told me about decentralization, fighting against fiat currency, fighting inflation, and Merkle trees, I don’t think I would want to listen for a second, I don’t care. But if he told me that buying this would make me rich, I would definitely put down "How to Become a Millionaire" and listen carefully.
In the design mechanism of ENA, Ponzi scheme is used to the extreme, almost in a spiral rising mode.
High returns attract users. Users deposit USDT into the platform, and the platform uses this money to help users conduct risk-free funding arbitrage - this was done by DeFi big players and quantitative companies in the past, taking the funding fees of perpetual contracts and making a lot of money. Now a company does it for you, and ordinary users can also get high returns, such as 35% annualized stablecoins.
If you don’t know how to operate it, maybe you can try to connect your wallet and feel it. Some people may be shocked because it is very simple. You just need to click buy, change USDT to USDE and then stake.
https://app.ethena.fi/join/s1u7g
During the same period, bank deposit interest rates vary from place to place, perhaps between 1%-5%, while here it starts at 35% (there are also some slightly more complicated operations that can get 70%).
Is there any risk in this mechanism? Yes, but it is definitely not like the original Luna project which has mechanism defects. A lot of research has been done on the ENA project, and basically everyone agrees that there is no flaw. If you want to know more, you can refer to my previous article:
《ENA 10U or zero, interpretation from the perspective of MEME》https://x.com/BTCdayu/status/1776518957975122309
The key to the success of stablecoins is scale. For example, a stablecoin with a scale of 1 billion is not worth mentioning, a stablecoin with a scale of 10 billion is worth paying attention to, and a stablecoin with a scale of 50 billion can challenge USDC.
Therefore, the underlying logic is not complicated. What is complicated is how to promote the rapid expansion of the scale of stablecoins at the point where the interests of multiple parties are balanced. After all, if we talk about the underlying mechanism, any quantitative team or even DeFi expert can do capital fee arbitrage.
In the ENA mechanism, there are multiple levels of positive flywheels:
Flywheel 1: More USDT comes in for high interest > More USDE is minted > Larger stablecoin scale > Higher project valuation > Rising coin price due to higher valuation.
Flywheel 2: Due to the existence of ENA tokens, the price increase makes more people pledge USDT in the hope of obtaining high interest income and ENA token airdrops, which further expands the scale of USDE stablecoins and returns to spiral 1.
Flywheel 3: The growth of stablecoin scale, coin price and USDE usage scenarios further increases the coin price, and in a bull market even pushes the coin price far beyond the "reasonable range".
Currently, the size of USDE is 2.2 billion, as shown below:
On the one hand, the growth is rapid: the three flywheels are running well. Another factor to consider is that institutional chips are unlocked after one year.
On the other hand, the potential is huge.
The figure below shows that the total network contract holdings are 80 billion. According to the current situation, it is very reasonable and rapid for USDE to expand to 10 billion.
Therefore, there are actually two things that can be foreseen here:
First, ENA's valuation will increase as the size of USDE grows.
Second, both ETH and BTC may enter a faster positive spiral rise due to the existence of ENA, especially ETH, which is currently the focus of support. Of course, this also means that when volatility occurs, the decline will be more severe.
From the user's perspective, it is also a Ponzi scheme: on the one hand, the high returns will attract more people to deposit money. On the other hand, the rising prices of the project and the good narrative will make more people choose to join the community as the leader.
High returns, this is a simple but powerful mechanism. You have to believe that the power of this mechanism is beyond imagination - think about Plus Token that swept away 320,000 BTC, although this example is completely different from ENA.
5. Long-term layout of the organization
The success of a narrative always involves many inevitable and accidental factors, and one of the indispensable factors in the narrative of decentralized stablecoins is what kind of institution does this.
The thing itself is not difficult, but if you want to form a scale and ultimately realize the vision, you must have the top institutions, because the arbitrage of funding fees requires close cooperation from multiple aspects to proceed relatively safely and stably. For example, if you want to arbitrage on Binance, it is best to have your own people in Binance, so that you can reduce or avoid various strange centralized risks to a certain extent.
After the scale of stablecoins increases, it also requires cooperation from multiple parties to expand the use scenarios. In the end, stablecoins will continue to earn interest income on the one hand, and on the other hand, they must have more use scenarios and generate more sources of income - just like Tether. Only in this way can the project become a giant in terms of future income, even surpassing the income of ETH, and follow up on the coin issuance Ponzi. It should be noted here that the current protocol income is already ranked at the forefront of the currency circle.
The investment institutions of this project include not only exchanges such as Binance and OK, but also top market makers such as GSR and WM, and a number of large VCs such as Dragonfly. These institutional investors can play different roles in the project. In addition, there are some special institutions:
One is Franklin Templeton. It and BlackRock were listed in the 2023 global asset management rankings by Brand Finance. The surge in BlackRock, ETFs and BTC shows us the power of old money. This fund does not invest in many Web3 projects, mainly infrastructure projects, such as Sui, APT and LayerZero.
The other is Paypal Finance, which can be understood as Alipay. In addition to ENA, the web3 projects it invests in are related to wallets and payments. Paypal also has a stablecoin project. From my point of view, if the ENA project is successful, Paypal as an investor can also benefit a lot. For example, the current return of Yu'ebao in Alipay is 0.7541% per 10,000 shares in the past year. What if the interest is 35%? Or deduct 20% as profit and the interest is 10%?
Quite interesting.
VI. Conclusion
ENA is a star project in this round of bull market, with the aura of a protagonist. However, this article mainly hopes to use some unique perspectives to help people understand this extraordinary project in ordinary logic, rather than investment advice. Because whether the currency price will rise and how much it can rise requires consideration of more than just a good project. It is necessary to consider the circulation and release of various chips, as well as project returns, market recognition, potential risks and other aspects. The more these issues are studied, the more it can help us make scientific decisions.
So, please don’t understand someone telling you “Bitcoin is a good project” as “please buy Bitcoin immediately, it will rise to 1.5 million US dollars per coin and will never fall” - these are even two completely different things.
I just hope that I can make you understand that "ENA is a good project". As for what price to buy and what price to sell, please seek more professional guidance than me.
This article was originally written by Dayu
