Ethena Lab recently announced its decision to use Bitcoin to back its synthetic dollar, USDe, instead of relying on traditional banking systems. This move has sparked worry among cryptocurrency experts due to the potential risks involved, reminiscent of the Terra-LUNA crisis.

Overlapping issues have been noted between Ethena Lab's approach and the Terra-LUNA incident when a stablecoin pegged to Bitcoin reserves resulted in market turmoil and insolvencies within the crypto community. CEO Ki Young Ju has cautioned against Ethena's strategy, particularly its plan to sell Bitcoin to stabilize USDe's peg during market downturns, which could have far-reaching consequences.

Ethena Labs aims to propel the growth of its USDe synthetic dollar, aspiring to increase its market capitalization from $2 billion to $10 billion by allowing users to acquire USDe through the deposit of various stablecoins such as USDT, FRAX, DAI, crvUSD, and mkUSD.

The USDe protocol introduced by Ethena Labs operates differently from conventional stablecoins, using derivative hedging against collateral positions and an arbitrage system to mint and redeem. Despite its innovative approach, concerns have been raised about its potential impact on the market. Following the news, Ethena's native coin ENA experienced a 9% drop in price within 24 hours, currently valued at $0.922. Additionally, Aave, a prominent DeFi platform, is considering discontinuing MakerDAO's DAI as collateral due to the risks associated with allocating a significant portion of DAI to USDe, raising further apprehensions among industry participants.