Ethena Faces Decline Amid $106M Token Unlock: Will Aave's Liquidity Risks Deepen the Downtrend?

Summary:
Ethena's trading price has dipped due to emerging liquidity risk concerns and a significant token unlock. Despite a notable surge in value over the past month, investor sentiment is shaky as the market navigates these challenges.

Key Takeaways

Ethena's price is currently $0.586, marking a 2.9% drop in 24 hours.
A total of 171.8 million ENA tokens were unlocked on August 5, contributing to market unease.
Trading volume remains significant despite the token unlock, with a 24-hour spot trading volume of $1.01 billion.
Aave's heavy involvement with Ethena raises concerns about systemic liquidity risks, especially following a recent surge in USDe supply.

Ethena Faces Decline Amid $106M Token Unlock: Will Aave's Liquidity Risks Deepen the Downtrend?

Ethena's Current Market Situation

Ethena is experiencing a downturn as new apprehensions regarding liquidity risks and a major token unlock are impacting investor confidence. As of now, Ethena's price stands at $0.586. This reflects a 2.9% decline over the last day, despite having jumped over 130% in the previous month. The recent drop includes a 5.6% decrease over the past week as traders evaluate the repercussions of a sizable supply unlock and increasing risks tied to Ethena’s affiliations with the Aave protocol.

On August 5, a substantial 171.8 million ENA tokens, valued at approximately $100 million and representing 2.6% of the total supply, were unlocked. So far, only 41% of ENA's overall supply has been released, and this latest tranche may exert additional selling pressure on the market, particularly if recipients opt to liquidate their holdings.

However, Ethena's recent growth, bolstered by strong partnerships within its ecosystem and rising corporate interest in token-based treasuries, may help alleviate some of this pressure.

Trading Volume and Market Activity

Despite the token unlock, market activity remains robust. The 24-hour spot trading volume for ENA is currently $1.01 billion, although this reflects a 3.9% decrease. Data from Coinglass shows that derivatives volume has dropped 7.6% to $3.19 billion, while open interest decreased 3.6% to $1.06 billion, suggesting a slight pullback in speculative trading.

Aave's Role and Systemic Risks

Market observers are keenly watching Ethena's growing engagement with Aave in addition to the token unlock. According to a report by risk advisory firm Chaos Labs from August 2, Aave holds over 55% of USDe’s supporting assets, valued at $4.7 billion. This practice, known as rehypothecation, employs the same assets to back USDe and generate yields on lending platforms. While common in traditional finance, this dual-purpose approach heightens systemic risk.

Chaos Labs warns that a major deleveraging event—such as mass withdrawals or decreased confidence—could trigger a liquidity crisis impacting both Aave and Ethena. Growing concern exists that an over-reliance on a single lending protocol may compromise financial stability, particularly as the supply of USDe surged by 75% in the last month, reaching a peak of $9.3 billion.

Price Analysis and Outlook

Currently, ENA's price movement is showing some signs of cooling, but crucial support levels remain intact. A relative strength index (RSI) of 53 indicates neutral momentum. The Bollinger Bands suggest a drop in volatility following a recent decline from the weekly high of $0.67.

Most moving averages are still trending upward, with ENA trading above both its 50-day and 100-day exponential moving averages, currently at $0.414 and $0.389, respectively. Despite the short-term market fluctuations, this supports a longer-term optimistic outlook.

If there’s a pullback, the price may head towards $0.52 if it falls below the $0.56–$0.58 range. Conversely, should market conditions stabilize, renewed buying interest above $0.60 could lead to testing levels around $0.65 or higher.