Introduction

The digital currency landscape is witnessing the emergence of innovative protocols that aim to redefine financial sovereignty and efficiency. Among these, the Ethena protocol represents a significant stride toward creating a decentralized financial ecosystem via its own synthetic dollar USDe and a novel concept known as the “Internet Bond.”

Decentralized stable assets compete to solve best what is known as the stablecoin trilemma, consisting of the following three pillars:

Sustainable yield
Stability
Decentralization

Historical precedents have shown that traditional stablecoins, despite their facade of stability, are not impervious to market volatility. Instances such as the SVB collapse expose vulnerabilities that can lead to value fluctuations, a reality Ethena confronts head-on by articulating the divergent risk factors of its product.

This exploration delves into the mechanisms and implications of Ethena's offerings, providing a granular understanding of its potential impact on the digital economy.

What Is Ethena and USDe?

Ethena introduces USDe, a synthetic dollar asset that distinguishes itself from conventional stablecoins through its unique collateral structure and operational paradigm. Unlike traditional stablecoins, which rely on real-world financial assets for collateral, USDe leverages a mix of digital assets and futures positions. This approach addresses the limitations of existing dollar-linked assets, particularly their reliance on the traditional financial system, which introduces a layer of vulnerability and inefficiency.

It is designed to address the challenges of stability and scalability in the stablecoin space:

Stability: USDe is pegged to the value of the US dollar, which means that 1 USDe will always be equal to 1 US dollar.
Scalability: Unlike other stablecoins that rely on centralized reserves, USDe uses a unique mechanism called 'Internet Bond' to scale its supply within the Ethereum network. This allows it to grow in line with the demand without compromising its stability or requiring external collateral.

USDe Collateral Model

USDe is backed by a “delta-neutral” ETH position, a distinctive feature in comparison to existing stablecoin models that use Real-World Assets (RWAs) or Collateralized Debt Positions (CDPs) for collateral. A delta-neutral position is a strategy used in investing and trading to protect against significant price changes in an asset. In simple terms, it's a practice of balancing exposure perfectly so that no matter which way the asset's price moves (up or down), the overall value of your investments stays the same.

In the case of Ethena, each USDe is collateralized by a long staked ETH (stETH) position, offset by an equivalent ETH perpetual futures contract (ETH-PERP) short position.

This creates a delta-neutral position:

Positive Delta (stETH)+Negative Delta (Short ETH-PERP)=Delta-Neutral (USDe)

If the price of ETH drops from $3000 to $2500, the short ETH-PERP position offsets the $500 price swing. Conversely, if the price of ETH rises to $3500, the short ETH-PERP position decreases by $500.

In addition to Ethereum, Ethena also includes Bitcoin, Staked Ethereum (stETH), and Tether (USDT) within its collateral model. These other assets work in the same way. For example, BTC is paired with an equivalent short BTC-PERP position to maintain delta-neutral backing. The main difference is that ETH collateral can be staked to earn additional yield, while BTC cannot.

Advantages of a Delta Neutral Strategy

Overall, a delta neutral strategy not only enhances capital efficiency but also mitigates the liquidity constraints faced by similar projects, such as UXD in the Solana ecosystem, by leveraging the liquidity available in centralized exchanges.

Delta-hedging functions by adjusting the position in the underlying Ethereum collateral based on the option's delta, which represents the rate of change in the option's price for every one unit change in the underlying asset's price. Through this method, USDe strives to remain closely pegged to the US dollar. As market conditions fluctuate, the protocol dynamically alters its Ethereum positions to ensure that any exposure to price movements is appropriately hedged.

This approach offers several advantages:

Risk Reduction: By decreasing sensitivity to volatile swings in Ethereum's price, USDe can offer a reduced risk profile compared to other stablecoins that do not employ such strategies.
Improved Price Stability: Delta-hedging contributes to maintaining a stable exchange rate between USDe and the US dollar, which is vital for users who rely on predictability for trading and planning financial operations.
Market Confidence: The rigorous application of this mechanism can enhance market confidence in USDe's ability to maintain its peg even during turbulent market conditions.

The implementation of delta-hedging demands continuous monitoring and adjustment, making it a sophisticated component of Ethena’s stability framework. To ensure effective execution, smart contracts automate these adjustments based on predefined rules and triggers, aligning with real-time market data.

Risks of a Delta Neutral Strategy

Ethena’s delta-neutral strategy is a mechanism design predicated on several critical conditions. Firstly, the average ETH perpetual funding must remain positive. Secondly, any periods of negative funding should be sufficiently covered by the yields from stETH. Lastly, an external pool of capital is earmarked to address further shortfalls. This multi-layered strategy is essential for maintaining the principal balance of USDe above the $1 mark, preventing erosion due to negative funding payments.

The Role of Funding Rates

The funding rate, a potentially volatile metric, is ingeniously utilized by Ethena to recalibrate supply and demand for USDe. Rather than being viewed solely as a risk, negative funding rates are seen as an opportunity for adjustment. If USDe holders opt to redeem their stablecoins during periods of negative funding, the protocol unwinds short hedges, facilitating a mean reversion of funding rates. This dynamic allows for a natural equilibrium between the expansion and contraction of supply, influenced by the attractiveness of yields.

ETH funding rates typically exhibit a positive bias, indicative of a demand-supply imbalance for leverage within the cryptocurrency market. An examination of ETH funding data reveals a natural tendency towards positive basis and contango, with a notable streak of 99 consecutive days of positive funding rates. Conversely, the longest streak of negative funding recorded was a mere 13 days. This positive funding environment is critical for Ethena's strategy, as it underscores the inherent demand for leverage and the capacity of the protocol to withstand negative funding periods.

Additionally, staked Ethereum yields play a pivotal role in buffering USDe against negative funding rates. Historical data suggests that stETH yields, ranging between 4-6%, provide a substantial margin of safety. The analysis of combined stETH yields and funding basis indicates that only a fraction of days experienced a negative excess spread. This financial cushion is fundamental to Ethena's resilience, ensuring the stablecoin can navigate through various market conditions without compromising its value.

USDe Architecture and Functionality

Ethena’s architecture is built around three core mechanisms: minting, redeeming, and staking USDe. To begin, users do not directly mint or redeem USDe. Instead, they interact with gatekept liquidity pools (directly through the Ethena UI or indirectly through an exchange).

On the back end, whitelisted liquidity pool participants (those who have satisfied Ethena’s KYC/AML checks) are responsible for executing swaps. For mints, USDe is minted by depositing collateral into Ethena. The whitelisted participants then use this fresh collateral to purchase stETH or BTC, which are paired with an offsetting 1x short perpetual futures position. This position is held on a centralized exchange, while the collateral assets are held off-exchange.

For redemptions (i.e. when USDe is trading above peg price), USDe can be swapped for 1:1 for $1 worth of collateral. Protocol participants unwind an equivalent position necessary to execute the redemption, and that collateral is returned to the user. The arbitrage from conducting these swaps is then collected by whitelisted participants. Users interacting with the Ethena frontend can simply deposit or redeem collateral equal to their position in USDe.

USDe Staking Yield: Internet Bond

A core driver of the growth in Ethena total value locked (TVL) has been its attractive yield offering. To take advantage of this high yield, users are required to stake their USDe to receive sUSDe via the Ethena front end.

Unlike other staked tokens, sUSDe is a “reward-bearing” token, meaning yield accumulates within the staking contract, increasing the value of sUSDe over time.

This is what Ethena refers to as the “Internet Bond.” Stakers are effectively tapping into the yield generated by the Ethena protocol, which is a combination of stETH yield (typically averaging around 4%) and the yield from funding rates from its futures positions (which has generated upwards of 30% yield in 2024). Within bull markets, this creates a highly competitive APY for stakers.

Ethena adopts a market-responsive approach to interest rates, eschewing fixed rates in favor of a dynamic model that reflects natural market cycles. This philosophy allows for adjustments in USDe's market presence, aligning with the principles of expansion and contraction inherent to a healthy, market-driven economy.

Is the Yield Sustainable?

Ethena offers the potential for consistently high yields, but the growth of these yields may be constrained by fundamental factors such as Ethereum staking rates and funding rates. Many analysts believe that fluctuations in Ethena’s yield will be largely influenced by changes in funding rates. While users might experience short-term yield volatility due to market sentiment shifts or liquidation events, long-term funding rates are expected to remain relatively stable.

Funding rates, which reflect the cost of borrowing on perpetual exchanges, have historically hovered around 10-11% APY, aligning with market-driven borrowing costs. If these rates decline, indicating cheaper borrowing, it will likely prompt longs to increase their positions, while shorts may exit due to lower returns, driving rates back to equilibrium. Conversely, if rates increase, signaling higher borrowing costs, longs may close positions, and shorts might enter to capitalize on the higher yields, again pushing rates toward the 10-11% range. This cycle suggests that any significant increase in Ethena’s yields may be temporary, with long-term yields primarily determined by broader market borrowing costs. Consequently, Ethena’s return on assets is projected to settle around 14-15%, with 10-11% coming from funding rates and an additional 3-4% from Ethereum staking.

Ethena recently revised its model to allocate all yield to users who stake USDe, a shift from the previous approach where the protocol retained a portion of the yield from unstaked USDe. This change implies that a lower staking rate results in a higher yield, as the rewards are distributed among fewer participants. Currently, Ethena is offering approximately 37% to stakers, supported by a low staking rate of 15%. This rate has been artificially suppressed by Ethena’s Sats campaign, which incentivizes users to deploy USDe in DeFi instead of staking it by offering ‘sats’ linked to a future airdrop. As the campaign is set to conclude in September, the incentive to avoid staking USDe will diminish, leading to an expected increase in the staking rate and a subsequent decrease in USDe yields to around 15-20%.

New Opportunities

The approval of a spot Ethereum ETF could significantly impact the DeFi landscape, particularly for synthetic dollar-denominated assets like sUSDe. Drawing from the recent experience with Bitcoin ETF approval, this development could increase institutional capital in the Ethereum ecosystem, enhancing the appeal of high-yielding assets such as sUSDe.

The approval of a Bitcoin ETF had a profound effect on the market, driving up prices and funding rates. Funding rates, which are periodic payments between long and short positions in the futures market, increased dramatically as more traders took long positions, anticipating price appreciation. Before the ETF approval, funding rates were relatively stable, hovering around 10%. Post-approval, these rates spiked to as high as 50% annualized, reflecting heightened market activity and demand.

Similarly, an Ethereum ETF approval could drive up funding rates for ETH perpetual futures. Since sUSDe’s yield is partially derived from these funding rates, holders could benefit from the increased market activity. The approval of the Bitcoin ETF by the U.S. SEC on January 10, 2024, led to Bitcoin’s price nearly doubling within a few months. This surge in price and funding rates highlights the potential impact an Ethereum ETF approval could have on the yields of dollar-denominated assets like sUSDe.

Institutional investors seeking Ethereum exposure through ETFs might increase the demand for perpetual contracts, leading to a sustained positive funding rate environment. This could benefit sUSDe holders, who could earn additional yield from these funding payments.

Furthermore, the shift of spot demand to regulated ETFs could create arbitrage opportunities due to the lagging spot demand on offshore exchanges. This situation might result in a persistent basis between spot and futures prices, which traders could exploit, contributing to higher yields for sUSDe holders. Positive market sentiment following ETF approval could also drive funding rates higher, enhancing the yield potential for sUSDe.

Risks and Risk Management

Ethena’s USDe presents a highly complex risk landscape that intersects multiple aspects of tokenomic design and finance.

Off the bat, it is important to quell comparisons of USDe to that of Terra Luna’s UST stablecoin. Yes, USDe offers a highly attractive, competitive yield to even commodity pools, similar to what was offered by UST. In reality, this is where the comparisons stop. USDe is collateralized and generates organic yield from its delta-neutral strategy and additional stETH yield. Again - emphasis on ORGANIC yield here. With that in mind, that is not to say that USDe is not without its own set of risks.

Counterparty Risks

Ethena's operation relies significantly on CEXs for the execution of perpetual futures contracts that are integral to maintaining USDe’s stability and liquidity. This dependency introduces a spectrum of counterparty risks primarily associated with the operational and financial health of these exchanges.

The failure or compromise of a CEX can directly affect USDe's integrity and market perception. For instance, a security breach, regulatory shutdown, or financial insolvency of a key exchange partner could disrupt the trading of Ethena’s perpetual positions and impact its ability to maintain the peg and liquidity of USDe.

To manage these risks, Ethena integrates with several leading CEXs such as Binance, Bybit, Bitget, Deribit, and OKX. This approach diversifies the exchange-related risks, ensuring that the failure or compromise of one exchange does not disproportionately affect the entire ecosystem. Moreover, these exchanges have vested interests—both tangible and reputational—in the success and stability of Ethena, providing an additional layer of risk mitigation.

Off-exchange Settlement Providers (OES)

Something else to note is the role of off-exchange settlement (OES) providers. OES providers handle the custody and settlement of the collateral backing USDe, which involves substantial risks related to the safekeeping and appropriate management of these assets. Mismanagement, operational errors, or insolvency of an OES provider could lead to direct financial losses for Ethena and its users.

Ethena employs renowned OES providers like Copper, Ceffu, and Cobo, which utilize bankruptcy-remote trust structures to enhance the safety of user funds. In the event of an OES provider’s bankruptcy, the assets held in trust are protected from being considered part of the bankrupt estate, thereby safeguarding user investments.

Not to mention, frequent PnL (Profit and Loss) settlements are conducted to limit the duration during which funds are exposed to counterparty risk. Ethena’s strategy includes regular audits and third-party attestations of the collateral, enhancing transparency and trust in the custodial arrangements.

Regulatory and Censorship Risks

While not necessarily only applicable to Ethena, what does need to be considered is that former stablecoin providers (thinking about Terra here specifically) did face major repercussions for their operations form regulators. With that in mind, any crypto users within the United States is not eligible to access Ethena’s products.

Ethena's strategic decision to avoid direct connections with US-based customers or custodians provides a certain level of insulation from the US's stringent regulatory framework. This distancing is crucial because the US has historically exercised significant regulatory oversight over financial transactions, which can include freezing assets or imposing sanctions.

Entities like Tether and Circle have faced challenges under US regulations. For instance, Circle's exposure to Silicon Valley Bank (SVB) highlighted how regulatory decisions and banking challenges could indirectly impact operations, even when direct regulatory actions are not taken against a crypto entity itself. Unfortunately, this comes at the cost of losing one of the largest crypto markets in the world.

While Ethena may be insulated from direct US regulatory actions, the global regulatory environment remains a significant risk factor. Different countries may impose varied regulatory standards that could affect Ethena's operations, particularly in jurisdictions with significant market participation but unstable regulatory attitudes toward cryptocurrencies. The cryptocurrency industry has seen instances where regulatory environments have shifted rapidly with little to no warning. Examples include the Chinese government's crackdown on cryptocurrency trading and mining, which had profound impacts on market dynamics and operational strategies for global crypto entities.

Censorship Risks

The inherent design of Ethena, which avoids reliance on the traditional US banking system, reduces the risk of being directly affected by financial censorship from US jurisdictions. Traditional financial systems can exert considerable control over economic activities, including freezing assets or restricting transactions under regulatory or governmental orders.

However, USDe users need to take into account that Ethena’s operations are heavily gated, with Ethena’s whitelisted operators holding the sole ability to mint and redeem physical USDe. This also places risk management operations into the hands of approved operators (and the protocol team itself). Thus, it is not a trustless system.

Negative Funding Rate Risk

Perpetual futures, a key component of Ethena’s financial model, do not have an expiry date and thus require a mechanism to anchor their prices to the underlying spot market. This mechanism is achieved through funding rates, which are periodic payments exchanged between long and short position holders. Positive funding rates imply that longs pay shorts, which generally occurs in bullish markets. Conversely, in bearish conditions, shorts pay longs when the funding rates turn negative.

Athena’s USDe relies heavily on the income generated from these funding rates. The model assumes that, more often than not, the market condition would be either neutral or bullish, thus generating positive funding rates that shorts, like Ethena, collect.

In a bear market or during high volatility periods, the demand to go long may decrease, and the market could experience prolonged negative funding rates. This scenario requires shorts, such as Ethena, to pay funding costs, potentially draining the reserves that support the stability and peg of USDe. Ethena maintains a reserve fund designed to cover the discrepancies during negative funding rates, ensuring that USDe can maintain its peg to the dollar even when the perpetual positions are not profitable.

Although rare, extended periods of negative funding rates have occurred in the crypto market, notably during market crashes or significant bearish trends. These periods challenge models like Ethena’s, which rely on favorable funding rates to sustain operational yields and support the stablecoin’s peg. Thus, if negative funding rates persist longer than anticipated, there is a real risk that the reserve fund could be depleted, jeopardizing the stability of USDe. The size of this fund and its ability to cover extended periods of negative rates are crucial in evaluating the risk exposure.

Obviously, this is a worst-case scenario. However, the real risk here is less about whether negative funding rates would persist long enough to actually drain Ethena’s reserves and more about the perceived market reaction to this possibility in the first place. It is foolish to assume that every user, or even the majority of users, will fundamentally understand Ethena’s reserves versus historical funding rates. If market perception spreads that there could be a problem, this alone could lead to a bank run, which could further destabilize USDe’s peg, resulting in deeper panic.

Developing more sophisticated models to predict the likelihood and duration of negative funding rates could better prepare Ethena to manage its reserve fund effectively. It could also provide necessary footing within the marketplace to help counteract any mass panic surrounding the stability of USDe, helping to prevent an otherwise unnecessary bank run.

So, keeping investors and users informed about the health of the reserve fund and the measures in place to manage prolonged negative rates builds trust and transparency.

Liquidity and Redemption Risks

With the possibility of negative funding rates being addressed, it is crucial to analyze risks associated with liquidity redemption. Concerning risks, Ethena identifies liquidity, specifically, the costs associated with entering and exiting USDe positions, as the primary concern rather than funding. The challenge lies in managing slippage costs, particularly during periods of high-volume exits, to ensure that users can redeem their positions without incurring significant losses.

Ethena employs an "anti-reflexive" market design intended to stabilize USDe during high volatility and significant market downturns. This design theorizes that large redemptions, while potentially destabilizing in the short term, could help realign the market by reducing the overall supply of USDe, thereby supporting its price peg to the dollar.

In practice, this involves Ethena unwinding equivalent short positions in response to redemptions, which is expected to push funding rates back up, theoretically stabilizing the market. However, this comes with a set of assumptions:

Assumption 1 - Market Demand for Shorts: The effectiveness of this mechanism assumes that there is not a stronger or equivalent demand from the market to short ETH-PERP or other assets, which would keep funding rates negative. If the market demand to maintain shorts is stronger than the effect of the unwind, negative funding rates might persist, leading to a drain on the reserve fund and potentially eroding the principal balance of USDe below $1.
Assumption 2 - Market Liquidity: The second assumption hinges on sufficient market liquidity to absorb USDe redemptions without significant price impact. In extreme scenarios, known as "left-tail events," where funding rates flip violently negative, the market might lack the necessary liquidity to handle large volumes of redemptions smoothly, breaking the anti-reflexive mechanism.

In most bearish scenarios, the decline in USDe's value might be gradual ("slow bleeding"), allowing holders ample time to exit their positions. However, in sudden downturns, the lack of liquidity could lead to sharper declines, exacerbating the risk of a reflexive de-peg from the intended $1 mark. During a market panic, the first to exit are typically direct USDe holders, who can trigger a swift unwinding of positions. Those holding sUSDe (staked USDe), who face a mandatory unstaking period, are disadvantaged, potentially leading to losses if they cannot exit their positions swiftly.

The rapid unwinding of positions could lead to significant market slippage, especially for less liquid collateral types like LSTs (Liquid Staking Tokens). This slippage could further destabilize the peg by creating a discount on redemption, effectively transferring the market's inefficiency directly to USDe and sUSDe holders.

Liquidations and stETH

Ethena uses both ETH and stETH as part of its collateral base to issue USDe. While ETH provides liquidity and stability, stETH is used to capture staking rewards, adding an income component to the collateral pool.

As identified by DeFi Education, stETH, while generally liquid, does not match the liquidity levels of ETH. In high-stress market conditions, the liquidity of stETH could be significantly lower than that of ETH, leading to challenges in quickly converting stETH to ETH or USD without impacting the market price. stETH is generally designed to be pegged to the value of ETH; however, the two can diverge in price due to the staking rewards accrued on stETH and differing market perceptions of stETH’s risk, especially related to the locking and unstaking mechanisms.

During periods of uncertainty or specific events impacting staked assets (like a slashing event), stETH could de-peg from ETH. This de-pegging presents a significant risk if Ethena’s collateral valuation is impacted, leading to instability in the backing of USDe. Thus, it should be emphasized that stETH does not come without extended risks.

Additionally, Ethena faces liquidity and market risks associated with its short positions held on centralized exchanges, primarily due to the use of stETH. These exchanges can apply a "haircut" to the stETH collateral, meaning they discount its value to account for various risks, such as liquidity. This practice potentially jeopardizes Ethena's positions, especially given the exchanges' policy to maintain a "No Loss" stance, allowing them to forcibly close positions to protect themselves.

The backdrop of this situation includes instances where exchanges utilized by Ethena have been implicated in criminal activities, raising concerns about the integrity and fairness in the handling of liquidations. The lack of trust in intermediaries, underscored by scandals like the FTX/Alameda case, amplifies the apprehension towards relying on these exchanges to execute liquidation procedures justly.

A specific risk scenario outlined by a Chaos Labs report suggests that Ethena's derivative positions could face liquidation under two conditions: a 30% depeg of stETH from its underlying value and the application of a 30% haircut by exchanges on the stETH collateral. This scenario presumes that Ethena has converted all its Ethereum into stETH, highlighting the precarious balance Ethena must maintain in leveraging stETH for its operations amidst market and operational uncertainties.

Centralization Vectors

The governance and operational framework of the Ethena protocol raises concerns about the transparency and fairness towards its users, especially concerning the distribution of rewards. A notable incident where the Ethena team unilaterally decided to cut rewards below the yields generated by their trading strategies underscores the centralized control over the protocol. Although this decision was reversed following backlash from the community, the incident highlighted the absence of safeguards to prevent similar actions in the future, raising questions about the reliability and fairness of the governance structure.

Ethena's handling of tokenholder rights further complicates trust issues. Unlike some RWA projects, such as those by MakerDAO, (s)USDe token holders seemingly lack clear legal entitlements to a proportionate share of the fund's assets. This design choice might have been strategic to evade regulatory scrutiny. Still, it leaves token holders in a precarious position with minimal legal, regulatory, or on-chain protections—akin to participating in a hedge fund without the corresponding safeguards.

The governance model hinted at involves shifting decision-making power to ENA token holders, potentially sidelining (s)USDe holders and leading to conflicting interests between these two groups. This "decentralization theater" may dilute the influence of (s)USDe holders over critical decisions affecting the protocol.

Moreover, the process of minting and redeeming tokens is permissioned, depending on specific entities to facilitate a fair market price and arbitrage opportunities. This dependency introduces a risk of illiquidity and unfair pricing for (s)USDe holders looking to convert their tokens into other crypto assets, especially if operational hurdles hinder these entities' ability to maintain active secondary markets.

Conclusion

The Ethena protocol and its USDe stablecoin represent an intriguing evolution within the DeFi space, characterized by innovative collateral structures and sophisticated risk management strategies. Through mechanisms such as the delta-neutral hedging strategy and the introduction of the Internet Bond, Ethena aims to address key challenges in the stablecoin trilemma: sustainability, stability, and decentralization. The protocol’s unique approach to collateralization, utilizing a blend of digital assets and perpetual futures positions, sets it apart from traditional stablecoins reliant on real-world financial assets.

Ethena’s model offers several advantages, including enhanced capital efficiency, improved price stability, and a comprehensive risk management framework that includes diversified hedging and stringent security protocols. The dynamic adjustment of its Ethereum positions to maintain the peg to the US dollar, coupled with the utilization of positive funding rates and stETH yields, highlights its innovative financial engineering. Additionally, the governance structure facilitated through the ENA token empowers token holders to make critical decisions, reflecting a commitment to decentralized governance, albeit with some notable centralization in operational control.

However, the protocol's reliance on CEXs for executing perpetual futures contracts and the role of off-exchange settlement providers introduce significant counterparty risks. The potential for negative funding rates and the challenges associated with liquidity and redemption further complicate the risk landscape. Moreover, the centralized control over key operational decisions and the lack of legal recourse for token holders to the underlying collateral differentiate Ethena from more decentralized DeFi projects like MakerDAO.

As DeFi Education explains, Ethena’s approach is more akin to “a hedge fund raising AUM [assets under management] with a token offering” rather than a fully decentralized financial protocol. This hybrid structure, while necessary for executing trades that cannot be done entirely on-chain, places considerable trust in the central entity managing the operations. The protocol’s dependence on the expertise of its team and the integration with various TradFi businesses underscores its centralized nature, which may not align with the decentralized ethos typically associated with DeFi projects.

The centralized control, combined with the lack of legal recourse for investors to the collateral, means that holding USDe or sUSDe entails accepting significant risks. Investors must carefully evaluate these risks against the potential rewards, recognizing that they are entrusting their assets to a centralized entity with substantial discretion in executing its strategy

Loading...