Ethena Fee Switch Nears Approval, But ENA Buybacks Remain on Hold

The Ethena fee switch is nearing approval, but ENA buybacks will not begin until the circulating supply of USDe reaches $7.5 billion. This threshold has been missing from recent coverage and is crucial to understanding the fee switch's impact on the protocol.

At present, the circulating supply stands at around $4.07 billion, which means there is still a significant gap to be bridged before the buybacks can commence. According to Blockworks Advisory, this gap represents approximately 84% of the growth needed to reach the first tier.

The fee switch itself is a governance decision that redirects a portion of the protocol's revenue towards buying back ENA tokens. This revenue sharing model is designed to create buying pressure for the governance token and has four tiers, each tied to USDe circulating supply. The levy rates climb in increments: 5% from $7.5 billion, 10% from $10 billion, 15% from $15 billion, and 20% from $20 billion.

The schedule follows a logic called 'growth mode', which aims to avoid slowing protocol growth by keeping the levy low at smaller supply levels. The proposal comes from Ethena Labs Research and has been endorsed by three members of the Risk Committee: Blockworks Advisory, OAK Research, and Kairos Research.