LlamaRisk supports the outcome of the Risk Committee vote on the ENA fee switch proposal. To ensure full transparency, we would like to share the rationale behind our votes and the arguments supporting them. Our votes on the proposed metrics were as follows:
1. USDe Circulating Supply
Vote: >$2B
Rationale: A $2B supply target reflects significant adoption while allowing for sustainable growth that mitigates risks associated with overexpansion, such as liquidity stress or inadequate reserve management. Ensuring that this threshold is maintained ensures realistic, achievable progress without sacrificing the protocol’s stability.
During the more constrained market conditions of the first three quarters of 2024, the supply threshold of $2 billion was consistently maintained. This indicates that this supply level represents the protocol’s baseline continuous utility. Under current market conditions, this lower threshold supports the possibility of implementing a fee switch earlier, while monitoring growth-related risks beyond this threshold. Nonetheless, we acknowledge and support the committee’s vote for a supply threshold of $6B.
2. Cumulative Protocol Revenue
Vote: >$250M
Rationale: Setting the $250M revenue metric ensures that the protocol achieves robust revenue streams before initiating revenue-sharing mechanisms. This level balances operational maturity and early return opportunities for sENA holders.
3. CEX Adoption
Vote: Integration on 5 Exchanges
Rationale: A broader integration mandate across 5 centralized exchanges improves liquidity access and hedges against venue-specific risks (e.g., regulatory actions or technical outages). Emphasizing top-tier exchanges with significant trading volumes ensures visibility and usability of USDe while diversifying exposure. In addition, we recommend balanced CEX liquidity diversification for optimized liquidity distribution and mitigation of single-exchange dependency.
4. Reserve Fund Capitalization
In alignment with the initial considerations, we highlight the critical importance of Reserve Fund sizing. Ensuring that the Reserve Fund is sufficiently capitalized remains a top priority, as its capitalization is a fundamental prerequisite for the seamless activation and operation of the fee switch. Our efforts will focus on regularly assessing the adequacy of reserves and prioritizing the fund’s resilience over revenue sharing.
To support this, we have introduced a reserve fund drawdown analysis designed to recommend an optimal capital level for the Reserve Fund. We intend to reference this analysis continuously to determine sensible revenue distribution. Our methodology may be further refined in collaboration with other risk committee members, in which case we will publicize any changes.
LlamaRisk will continue active engagement with Ethena Labs and all concerned entities to ensure a risk-measured fee switch process.