Yearn\u2019s Andre Cronje is the latest DeFi OG to sound the alarm. <\/p>\n
Ethena Labs launched its USDe synthetic dollar on Feb. 21, causing a stir<\/a> among analysts for its double-digit yield. \u201cCrypto Twitter\u201d seemingly hasn\u2019t stopped talking about it since, with some praising the project\u2019s novel mechanism while others decry its risks.<\/p>\n The latest crypto heavyweight to sound the alarm on USDe is Fantom<\/a> and Yearn Finance founder Andre Cronje. Cronje took to X yesterday to say that when market conditions change, USDe can lose its collateral.<\/p>\n \u201cThere is a new primitive that is gaining a lot of traction,\u201d Cronje posted<\/a> on April 3, \u201cand I am seeing it integrated into protocols I considered to be very low risk, but from my (perhaps incorrect) understanding, this new protocol is very high risk.\u201d<\/p>\n Cronje pointed out the mechanism that USDe uses, underscoring the importance of funding rates in Ethena\u2019s architecture and how, if these turn, triggering liquidations, the asset could suddenly lose its backing.<\/p>\n So \u201cwhile things are great now,\u201d he said, \u201cbecause everyone is happy long,\u201d sentiment can easily change.<\/p>\n The anonymous co-founder of Alchemix Finance, Scoopy Trooples, agreed with Cronje\u2019s tweet, which now has over 2,000 likes, and said, \u201cI’ve been showing concern for it at the risk of being labeled a midwit.\u201d<\/p>\n Evgeny Gaevoy, CEO of algorithmic trading firm Wintermute, also responded to Cronje\u2019s post. According to<\/a> Gaevoy, liquidations aren\u2019t of concern. The problem, he explained, is custodians, adding that the risk resembles FTX<\/a> more than it does LUNA.<\/p>\n Removing liquidations from the risk profile is something MonetSupply, the pseudonymous co-founder of Block Analitica, a risk intelligence platform for DeFi, agrees<\/a> with.<\/p>\n He also highlighted custody risk, calling it \u201cone of the more significant risks.\u201d MonetSupply addressed a number of concerns, debunking several while pointing out others, including exchange solvency and Ethena entity risk, i.e., internal keys getting compromised.<\/p>\n USDe, Ethena\u2019s synthetic stablecoin<\/a>, backs the token, which is pegged to $1, with staked Ether while also hedging stETH with short ETH positions on centralized exchanges. Both stETH and short positions contribute to yield that\u2019s passed on to USDe holders.<\/p>\n It has since ballooned<\/a> to a $1.3 billion market cap, reaching the top 5 on Coingecko. Ethena also completed its ENA airdrop<\/a> yesterday, skyrocketing the network to a $1 billion market cap.<\/p>\n Ethena\u2019s USDe has been compared with Terra\u2019s UST stablecoin. In 2022, Terraform Labs \u2013 led by the now-detained<\/a> Do Kwon \u2013 launched a native token, LUNA, and an algorithmic stablecoin, UST, which was backed by LUNA. UST lost its peg after a sharp drop in the price of LUNA, which caused a downward price spiral and run on deposits which wiped out nearly $50 billion of UST\u2019s market cap in a matter of days.<\/p>\n However, unlike UST, USDe is backed by stETH and, as of today<\/a>, BTC.<\/p>\n \u201cI don\u2019t see any comparison between Ethena and Terra\/Luna aside from the general category of stablecoin,\u201d said Nic Carter<\/a>, general partner at Castle Island Ventures.<\/p>\n Carter explained to The Defiant that Ethena is a straightforward delta-neutral stablecoin which has existed in a variety of contexts in the past and \u201cshould be able to\u201d withstand any number of market conditions.<\/p>\n On the other hand, Carter said Terra \u201cwas effectively unbacked\u201d and offered a fixed 20% rate, which forced the company to continually raise capital to deliver it.<\/p>\nLiquidations Aren\u2019t Possible<\/h2>\n
Ethena\u2019s Explosive Growth<\/h2>\n
Completely Different Assets<\/h2>\n