Ethena Faces Backlash Over Tokenomics Changes

Ethena, a synthetic dollar protocol built on Ethereum, recently announced unexpected modifications to the tokenomics of its governance token, ENA, stirring significant controversy among its community. The announcement, made through a blog post by Ethena Labs—the entity behind the protocol—outlined changes aimed at better aligning the growth of its dollar-pegged stablecoin USDe with the governance token ENA.

Ethena Labs introduced enhanced functionality for ENA, including the ability to stake tokens in generalized staking pools with LayerZero or Symbiotic, and options to lock up tokens within Ethena and Pendle Finance. These additions are designed to provide more avenues for yield generation. However, the requirement for users to lock up half of the ENA distributed to them in an airdrop has not been well received.

Starting June 17, Ethena will mandate users to lock their ENA in either Ethena, PT-ENA on Pendle Finance, or generalized restaking pools. Those who fail to comply will see their unvested ENA redistributed to other participants who adhere to the locking requirement. Ethena Labs stated, “The intent of the above is to incentivize a realignment of $ENA holders from mercenary capital to long-term aligned users.”

Further emphasizing their commitment, Ethena Labs assured that none of the forfeited ENA would be retained by the foundation, team, or investors; it is intended solely to benefit users who are aligned with the ecosystem’s long-term vision.

However, this move has led to backlash on social media platforms, particularly on platform X, where users expressed their frustrations. A user known as “@DarkCryptoLord” criticized the lack of democratic process in the implementation of these changes, highlighting the absence of an onchain vote prior to the decision. “First we got our monthly unlock changed into weekly unlock overnight. Then now we are forced to lock 50% of our unlocks. What’s the point of a governance token?” they remarked.

DeFi educator John Galt echoed similar sentiments, stating, “Making vesting airdrop recipients forced holders of ENA discredits the reliability of all future ENA airdrops, and indeed discredits the Ethena team.”

On the flip side, Kairos Research, a crypto research firm, sees potential in Ethena’s tokenomics revamp. They suggested that the strategy could effectively create a supply sink for ENA, though they expressed reservations about the implications of restaking a volatile governance token for protocol security.

Ethena’s recent tokenomics changes have ignited a debate within its community. While intended to foster long-term alignment and stability for the protocol, the forced locking mechanism has been met with criticism for its lack of transparency and perceived undermining of token holder rights. As Ethena navigates this turbulent period, the balance between innovation in tokenomics and community trust remains a critical challenge.