To the Ethena stakeholders and the broader community,
LlamaRisk is standing for re-election to the Ethena Foundation Risk Committee for the upcoming term.
Term 4 coincided with the most significant strategic shift in Ethena’s history: the transition of USDe backing toward real-world assets and a diversified portfolio of yield strategies. A change of this magnitude touches every risk vertical at once, from collateral due diligence and reserve capitalization to redemption mechanics and legal structuring. Throughout this transition, LlamaRisk’s focus has been on maintaining coverage across each of these verticals, so that the protocol’s risk posture stayed intact even as its backing composition and general strategy shifted completely.
In our previous election statement we set out Scaling via Strategy Diversification as one of our main goals for this term. Over the past nine months we have supported that vision by enabling Ethena to safely deploy $380M into institutional lending products and $500M into RWAs, positions that today account for 23% of the backing portfolio.
We are grateful for the trust placed in us as the committee moved to its concentrated three-member structure, and we intend to continue serving as a coordinating lead across reserve management, RWA diligence, and legal-governance risk.
Representation
Aidas, Head of Research, will continue be the individual primarily tasked with attending Risk Committee meetings on behalf of LlamaRisk. He has led LlamaRisk’s Ethena coverage throughout the current term. Svetlin, Chief Legal Officer, will also attend, covering the legal and regulatory dimension of the committee’s work. Members of our risk analyst team will join for particular topics where their specialized coverage is relevant.
Key Contributions During Term 4
A re-election statement should be checked against the promises of the last one. Our previous statement made two concrete commitments: Adaptive Reserve Fund and Portfolio-Level Risk Modeling, and Optimizing sUSDe Unstaking and Liquidity Flows. Both were delivered in full. The first produced a new Reserve Fund capitalization policy and a capital adequacy simulation framework reflecting the portfolio’s changed composition. The second produced the dynamic unstaking cooldown, now live and set to 1 day thanks to the portfolio’s superior liquidity properties.
Supporting the Transition to RWA Backing
Assisting Ethena in its transition to RWAs and portfolio diversification has been the main driver of our work this term. This transition is the focal point of Ethena’s strategic direction, and the diligence gating each new backing asset is what allows it to proceed at pace without compromising the protocol’s risk posture. We delivered structured risk and legal assessments for each candidate backing asset brought to the committee, clearing the path for the $500M now deployed into RWAs:
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JAAA (Janus Henderson Anemoy AAA CLO Fund) as a USDe backing asset, including full legal due diligence on the issuing structure
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STAC vs JAAA comparative evaluation, benchmarking the Securitize Tokenized AAA CLO Fund and differences in assets of the same type
Beyond individual asset reviews, we contributed our analysis to Ethena’s public article on RWA backing. This is market-facing material supporting Ethena’s institutional distribution narrative, articulating to allocators and the broader market why the diversified backing model improves the durability of USDe’s yield and resilience.
Reserve Fund Capitalization Policy Refresh
The shift toward RWA exposure materially changes the drawdown profile the Reserve Fund must be capitalized against. Funding-rate reversals, credit spread widening, and liquidity-driven NAV discounts behave very differently from perp basis risk, and the capitalization logic must reflect that.
We maintained the regular cadence of Reserve Fund analysis while recalibrating drawdown risks in line with the evolving backing composition, working alongside Blockworks Advisory. This recalibration has culminated in a refreshed Reserve Fund capitalization policy aligned with the protocol’s RWA exposure, which will be shared on the forum shortly. The consequence for stakeholders is direct: the Reserve Fund remains credibly capitalized against the drawdown profile the protocol actually carries, preserving the backstop that underwrites USDe’s stability as the portfolio changes.
Dynamic sUSDe Unstaking Cooldown
We developed the dynamic cooldown period model for sUSDe unstaking together with Blockworks Advisory. The model ties redemption timelines to the actual duration and liquidity risk of the deployed portfolio rather than a static assumption. Because the current portfolio exhibits superior liquidity properties, the cooldown is now set to 1 day, giving sUSDe holders materially faster exits without weakening redemption survivability guarantees.
Basis Trade Expansion
We evaluated the feasibility of diversifying Ethena’s hedging beyond crypto perpetual funding, including commodities and futures basis strategies. This work assesses execution venues, liquidity depth, margin and unwind dynamics, and the correlation profile these strategies introduce, ensuring that hedging diversification contains no hidden fragility.
Continued Legal Support
LlamaRisk brings a specialized legal and regulatory capability embedded in its Risk Committee mandate. No other committee member offers this function, and it has become especially vital as Ethena’s strategy shifts toward regulated counterparties, institutional lending, and RWA issuers. This term that capability was in constant use:
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We formalized the framework through which we act as legal reviewer for Ethena’s institutional lending arrangements, publishing our MLA Review Criteria for Ethena Institutional Lending Partners
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We conducted legal reviews of the Master Loan Agreements governing reserve-backing asset deployments to Coinbase Asset Management, Payward Trading (Kraken), and Maple and Anchorage Digital
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We completed confidential reviews of the Kraken, Anchorage Digital, and Zodia custody agreements, translating custody and regulatory constraints into actionable governance guidance
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Legal due diligence was embedded in every backing asset review listed above, covering issuer structures, jurisdictional compliance, and holder protections
These reviews are the gateway through which institutional deployments proceed. The $380M deployed into institutional lending products and the custody arrangements safeguarding USDe’s backing each went live only after independent review of the agreements governing them. As set out in our published review criteria, this work is contractual and structural risk review conducted in-house. It is not the provision of legal advice and it does not displace Ethena’s own counsel.
In parallel, we maintained transparency toward the community through the monthly governance updates, documenting risk, governance, and ecosystem developments as the transition progressed.
The result of this work is that coverage has been maintained across Ethena’s risk verticals even though the composition of USDe’s backing and the protocol’s general strategy have shifted completely since the last election.
Our Vision for the Next Term
Risk management done well is a growth function. The deployments of this term moved at the pace they did because diligence, legal review, and capitalization analysis were ready when each opportunity arrived. The durability of protocol revenue is the foundation of any value that accrues to Ethena’s stakeholders, and expanding the set of strategies the protocol can safely deploy into is the most direct contribution risk work makes to it. Our priorities for the next term follow from that principle.
Methodologies for Risk-Tuned RWA Allocations
As the RWA share of backing grows, allocation decisions need to move from asset-by-asset approvals toward a portfolio-level methodology. We will develop frameworks for risk-tuned RWA allocations that weigh credit quality, duration, liquidity, redemption mechanics, and issuer concentration jointly, giving the committee and Ethena Labs a repeatable basis for sizing each exposure.
Adaptive Reserve Fund Capitalization
We will continue to keep the Reserve Fund’s capitalization logic in line with the changing backing profile. This means updating the methodology as new strategy classes are onboarded and performing continuous backtesting and simulation against realized market data, so that capitalization recommendations remain credible under stress rather than anchored to a backing composition that no longer exists.
Deepening Legal Evaluations for Institutional Integrations
Every institutional integration, whether a lending partner, custodian, RWA issuer, or distribution channel, carries a legal dimension that determines how the arrangement behaves under stress. We will deepen our legal evaluation practice across these integrations, building on the MLA review criteria and custody review work of this term, so that Ethena can scale its institutional footprint with independent legal assurance at each step.
Conflict of Interest Declaration
LlamaRisk provides risk services to Aave DAO, where Ethena’s assets are listed as collateral. This is complementary rather than conflicting: our work on the platform that integrates USDe and sUSDe supports the safe expansion of Ethena’s distribution. LlamaRisk has no paid arrangements with any issuer of a current or candidate backing asset. Where a matter before the committee involves a party with which we have a commercial relationship, we will disclose it and recuse ourselves from the vote.
Closing
The transition Ethena is undertaking is not finished. The backing mix will keep evolving, the Reserve Fund methodology will need to evolve with it, and each new institutional relationship will demand rigorous legal and risk diligence. LlamaRisk has covered these surfaces throughout the current term and is committed to continuing that work with the same rigor and transparency.
We look forward to continuing our partnership with the Ethena community, Ethena Labs, and our fellow Risk Committee members.