Fantom creator Andre Cronje, a prominent figure in decentralized finance (DeFi), has expressed concerns about potential risks associated with Ethena Labs’ USDe stablecoin.
Cronje highlighted concerns regarding the risk management strategies behind USDe, particularly focusing on funding rates in perpetual futures contracts.
He warned about the possibility of USDe becoming an unbacked asset in adverse market conditions when funding rates turn negative and result in margin liquidations.
Cronje drew parallels to the collapse of TerraUSD (UST) on the Anchor protocol in May 2022, which led to significant value loss. He cautioned against similar risks with USDe.
Guy Young, the founder of Ethena Labs, addressed concerns by emphasizing the protocol’s resilience and risk mitigation measures.
Young viewed concerns as signs of a maturing industry, citing skepticism arising from the aftermath of the Terra collapse.
Ethena Labs employs emergency insurance funds and arbitrage mechanics to address negative funding rates, ensuring stability in the system.
Unlike Anchor protocol’s artificially inflated yield, USDe’s yield is generated through staking returns and shorting Ether perpetual futures contracts, making it more sustainable.
USDe’s yield is publicly verifiable, providing transparency about its sources and ensuring a more realistic and sustainable model compared to Anchor protocol’s approach.
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