Is Ethena’s “synthetic dollar” bringing a brand new systemic threat to decentralized finance (DeFi)?
Whereas eager to keep away from being labeled as a stablecoin, USDe is more and more being utilized as such throughout a number of the greatest gamers in DeFi. Some are fearful, nevertheless, that treating USDe as a centralized stablecoin adjustments its threat profile as a collateral asset.
An influential MakerDAO neighborhood member, often known as “ImperiumPaper,” has pointed to potential conflicts of curiosity between threat advisors working for Aave and Maker, who even have (or have had) associations with Ethena. The scenario has been likened to “a real estate agent representing both buyer and seller.”
An early-stage Aave governance proposal to peg USDe 1:1 with Tether’s USDT has raised considerations over potential conflicts of curiosity, particularly given the distinction in depeg dangers between the 2 property.
The proposal, posted to Aave governance boards yesterday and at present within the “Request for Comments” stage, suggests “hardcoding the USDe price to match the USDT price in Aave’s pricing feeds.”
This could change the present Chainlink USDe/USD oracle in an try to keep away from liquidations that show “unprofitable for liquidators, potentially causing bad debt to Aave.”
Nevertheless, each co-authors of the proposal, threat managers ChaosLabs and LlamaRisk, are both actively working with, or have beforehand labored for, Ethena.
Criticism of the proposal boils all the way down to the truth that Tether is (ostensibly) fully-backed by off-chain property, making certain the flexibility to redeem USDT 1:1 for USD off-chain.
USDe, however, is backed by a delta-neutral stability of lengthy and quick ETH positions, uncovered to the danger of “persistently negative funding rates” which can happen if market sentiment turns bearish.
One person likened the transfer to an “aggressive growth proposal” whereas one other criticized the round logic of acknowledging the differing dangers after which treating the property as having the identical worth as a substitute of taking applicable steps.
ImperiumPaper additionally raised related considerations days earlier following a proposal to reveal USDS (the rebranded model of DAI) to USDe and sUSDe by way of Spark. In addition they highlighted points with the timing of such a suggestion.
The MakerDAO neighborhood bigwig has been a harsh critic of Maker in current months, promoting their stake in governance following a wobbly rebrand and worries over an overleveraged founder placing the undertaking’s token MKR in jeopardy.
Curve, anybody?
Appears like DAI/USDS is about to get partial direct backing by USDe as a substitute of USDC. That is regardless of the proposer being an investor in Ethena and the danger consultants additionally working for Ethena. No unbiased threat evaluation given. https://t.co/EvFXNPZHOy
— PaperImperium (@ImperiumPaper) December 29, 2024
In response, Ethena founder Man Younger has denied any conflicts, underlining the undertaking’s threat committee which was arrange so as to “provide external discipline and accountability with regards to the ongoing management of the product.”
He additionally factors to a current instance of LlamaRisk proposing extra stringent measures on using sUSDe as collateral on Aave.
On Monday, Ethena’s former head of development (or “taking risk”) Seraphim Czecker stepped down instantly, stating that the agency is “entering a different phase in its growth.”
Nevertheless, Ethena exhibits no indicators of slowing down.
Yesterday, Younger referred to ‘Aavethena’ (which noticed mixed deposits of sUSDe and USDe on Aave shoot to a complete of $1 billion) as a “nice little proof of concept.”
Earlier in the present day, a 2025 roadmap titled Convergence was printed, setting out Ethena’s plans to combine additional with conventional finance and “completely alter the destiny of DeFi.”
Ethena’s Terra Flashbacks
On launch, Ethena’s excessive yield on its (don’t-call-it-a) stablecoin USDe drew comparisons to Terra’s UST, which imploded spectacularly in Could 2022. Whereas the comparisons have been maybe unfair, given the differing threat profile of the 2 property, customers have been understandably cautious after the fallout of UST’s collapse plunged DeFi right into a deep and sporting bear market.
Do Kwon, the architect of Terra’s UST and LUNA, which worn out an estimated $40 billion between them yesterday, pled not responsible to costs of fraud after being extradited to the US earlier within the week.