Previously we’ve established that to evaluate new exchanges as viable venues for Ethena’s hedging strategies, several key criteria must be met:
- Security: The exchange must have a robust history of security, including regular and up-to-date smart contract audits by top-tier, reputable audit firms.
- Open Interest: The exchange should offer sufficiently large open interest to ensure Ethena’s positions remain a small portion of the total, avoiding any market-moving impact or liquidity concerns.
- Funding Rates: Funding rates must align with those offered on centralized exchanges currently used by Ethena, particularly avoiding lower funding rates.
- Legal and Regulatory Compliance: A thorough legal due diligence process should be conducted and verified by the Ethena Foundation to ensure the exchange operates within acceptable regulatory frameworks.
Routing USDe hedging flows to on-chain venues supports Ethena’s goals of increased transparency and reduced counterparty risk. However, these venues are often newer and typically have lower liquidity and trading volume compared to centralized counterparts, so they must be approached with caution.
This proposal notes a combined open interest of $163M across BTC and ETH on Derive (covering both options and perpetuals). However, because Ethena only uses perpetuals, the relevant figure is, at the time of writing, $8.65M for ETH and $15.2M for BTC. Given Ethena’s policy that its share of open interest should remain under 10%—or as low as 5% in more volatile markets— hedging positions in Derive would be capped below $2M. Compared to Ethena’s current $5.8B in total backing notional (or $5.2B excluding stable backing), that represents less than 0.05% of total positions. Currently, that’s not sufficient to justify the operational overhead and risk of whitelisting a new exchange.
A recent look at Derive’s perpetual trading volumes shows strong growth since late November 2024. Higher volume typically signals deeper orderbooks and better trading conditions, suggesting Derive is on the right track to becoming a suitable venue—though further growth is still needed.
We remain open to revisiting this recommendation as Derive’s open interest grows. At that point, we would also evaluate both security considerations and funding rates before potentially approving Derive as a hedging venue.