Is Ethena’s “synthetic dollar” bringing a new systemic risk to decentralized finance (DeFi)?
While keen to avoid being labeled as a stablecoin, USDe is increasingly being utilized as such across some of the biggest players in DeFi. Some are worried, however, that treating USDe as a centralized stablecoin changes its risk profile as a collateral asset.
An influential MakerDAO community member, known as “ImperiumPaper,” has pointed to possible conflicts of interest between risk advisors working for Aave and Maker, who also have (or have had) associations with Ethena. The situation has been likened to “a real estate agent representing both buyer and seller.”
Read more: Ethena offers 27% on stablecoins but where is the yield coming from?
An early-stage Aave governance proposal to peg USDe 1:1 with Tether’s USDT has raised concerns over potential conflicts of interest, especially given the contrast in depeg risks between the two assets.
The proposal, posted to Aave governance forums yesterday and currently in the “Request for Comments” stage, suggests “hardcoding the USDe price to match the USDT price in Aave’s pricing feeds.”
This would replace the current Chainlink USDe/USD oracle in an attempt to avoid liquidations that prove “unprofitable for liquidators, potentially causing bad debt to Aave.”
However, both co-authors of the proposal, risk managers ChaosLabs and LlamaRisk, are either actively working with, or have previously worked for, Ethena.
Criticism of the proposal boils down to the fact that Tether is (ostensibly) fully-backed by off-chain assets, ensuring the ability to redeem USDT 1:1 for USD off-chain.
Read more: Tether’s Q3 attestations prove that it can’t quit secured loans
USDe, on the other hand, is backed by a delta-neutral balance of long and short ETH positions, exposed to the risk of “persistently negative funding rates” which may occur if market sentiment turns bearish.
One user likened the move to an “aggressive growth proposal” while another criticized the circular logic of acknowledging the differing risks and then treating the assets as having the same value instead of taking appropriate steps.
ImperiumPaper also raised similar concerns days earlier following a proposal to expose USDS (the rebranded version of DAI) to USDe and sUSDe via Spark. They also highlighted issues with the timing of such a suggestion.
The MakerDAO community bigwig has been a harsh critic of Maker in recent months, selling their stake in governance following a wobbly rebrand and worries over an overleveraged founder putting the project’s token MKR in jeopardy.
Curve, anyone?
Read more: MakerDAO could back a billion Dai with Ethena’s ‘synthetic dollar’ USDe
In response, Ethena founder Guy Young has denied any conflicts, underlining the project’s risk committee which was set up in order to “provide external discipline and accountability with regards to the ongoing management of the product.”
He also points to a recent example of LlamaRisk proposing more stringent measures on the use of sUSDe as collateral on Aave.
On Monday, Ethena’s former head of growth (or “taking risk”) Seraphim Czecker stepped down suddenly, stating that the firm is “entering a different phase in its growth.”
However, Ethena shows no signs of slowing down.
Yesterday, Young referred to ‘Aavethena’ (which saw combined deposits of sUSDe and USDe on Aave shoot to a total of $1 billion) as a “nice little proof of concept.”
Earlier today, a 2025 roadmap titled Convergence was published, setting out Ethena’s plans to integrate further with traditional finance and “completely alter the destiny of DeFi.”
Ethena’s Terra Flashbacks
On launch, Ethena’s high yield on its (don’t-call-it-a) stablecoin USDe drew comparisons to Terra’s UST, which imploded spectacularly in May 2022. While the comparisons were perhaps unfair, given the differing risk profile of the two assets, users were understandably wary after the fallout of UST’s collapse plunged DeFi into a deep and wearing bear market.
Read more: CHART: Do Kwon’s extradition has seen a total of 23 developments
Do Kwon, the architect of Terra’s UST and LUNA, which wiped out an estimated $40 billion between them yesterday, pled not guilty to charges of fraud after being extradited to the US earlier in the week.
