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Ethena Labs Under Fire For Alleged Funds Misuse, ENA Price Crashes 6%

Published

1 week ago

October 28, 2024

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Ethena Labs, a synthetic dollar protocol built on Ethereum, is under scrutiny after allegedly misusing 180 million ENA tokens on a crypto farming event. The price of a token went down by 6.01%.

The Ethena team reportedly staked 25% of the total ENA (SENA) in its ongoing Season 3 farming event, which could dilute rewards for regular participants and present ethical considerations.

This development has triggered huge crypto community debates, raising questions about Ethena’s transparency and governance.

Ethena Labs Scrutinized for Alleged Misuse of Tokens

Ethereum-based synthetic dollar protocol Ethena Labs is now under scrutiny after it was discovered it participated in one of its crypto-farming events using 180 million Ethena tokens. ENA token price went down immediately by over 6% at the time of writing, hovering around $0.33. The price of Ethereum, however, stayed stable and was standing around $2,512 at the press time.

On October 27, crypto sleuth Nomad accused the Ethena team of holding 25% of the total staked ENA in its Season 3 farming event and actively farming Sats with them. Satoshi rewards were given to users for interacting with different parts of the Ethena ecosystem.

The issue blew up when six Ethena wallets reportedly staked ENA tokens during the farming event and reaped huge rewards. That included Sats and Ethereal ETRL points. According to Nomad’s report, those wallets had gotten 180 million ENA tokens transferred from a Coinbase Prime Custody address. The given address allegedly held locked ENA tokens intended for the Ethena Foundation and core team.

The wallets received considerable gains shortly after the launch in September. Observers suspected that Ethena could skew reward distribution in favor of foundation insiders. In response to the allegations, Ethena stated that the staked ENA tokens are foundation-owned and therefore entitled to participate.

Ethena Labs: There Was No Insider Trading

Right after discovering the misuse, Ethena Labs sent an official message. The team categorically claimed that no locked team or investor tokens were staked as sENA to receive any rewards, including Ethereal.

We are aware of questions circulating in Discord and X as to whether investors or the Ethena team are earning Ethereal rewards via sENA using locked tokens.

We would like to categorically confirm to our community that absolutely no locked team or investor tokens are staked as… pic.twitter.com/v5SxgDwCTp

— Ethena Labs (@ethena_labs) October 28, 2024

The team publicly confirmed this on Discord last week. Users sent out all ENA from those wallets as unlocked. They were following the exact vesting schedule outlined in the original token distribution blog post.

The wallets in question hold foundation tokens that remain unlocked but meet the eligibility criteria.

The foundation has, however, indicated that these tokens should not be airdrop recipients or any other form of reward.

To further clarify, this week, the UI will add a section that breaks out the total sENA eligible for future airdrops. It will also exclude the undistributed sENA held in the Liquifi contracts.

Will Past Issues Hinder Future Success?

Nomad also mentions that Ethena’s past staking events had problems. Strange anomalies happened in Seasons 1 and 2, and some users suffered financial losses. This history of complications has made community members wary about the Ethena Labs commitment to fairness.

The probe focuses on how, with some $2.6B of users’ money under management, transparency and clarity are crucial in maintaining trust. This week, Wintermute, an algorithmic trading company, started accepting Ethena’s USDe token as collateral for OTC trading activities.

This deal will enable Wintermute’s customers to use USDe as collateral for various trading products, a sign that Ethena’s assets are gaining more acceptance despite the controversy.