BA Labs supports the above ENA Fee Switch Parameters. Our voted values for the metrics and reasoning are listed below:
USDe Circulating Supply: 6 billion USDe
Circulating supply is a good measure of protocol adoption and general user growth. This metric has nearly reached 5 billion units now and is on pace to achieve 6 billion within the next month if current growth rates persist. 6 billion circulating supply would make USDe the largest decentralized/cryptonative stablecoin on the market, edging out Sky’s USDS/DAI stablecoin which currently sits at ~5.4 billion circulating supply.
Cumulative Protocol Revenue: $250 million
Cumulative revenue is a measure of Ethena’s financial success. Considering that future sENA fee switch distributions will draw on protocol revenue, it makes sense to use this as a key threshold for determining if the protocol is mature enough to support distribution to token holders. We find that $250 million cumulative revenue threshold strikes a fair balance between activating fee switch earlier to benefit sENA stakers while ensuring the protocol has reached an adequate level of revenue generation.
CEX Adoption: Integration on at least 3 of top 5 derivatives exchanges.
Ethena Labs team has consistently communicated they view CEX as one of the most important growth drivers for USDe over the long term. Given the strong history of CEXes and particularly centralized perpetual contracts as the most successful product in crypto, we agree with this assessment and think Ethena should wait to achieve a healthy level of integrations in this space before activating sENA fee switch.
However, we also believe that focusing on other metrics such as overall protocol growth and adequate reserve fund size can help win integrations from top CEX. We believe that winning integrations on 3 of the top 5 derivatives exchanges is an adequate level of adoption to support sENA payouts. Hitting broader growth and reserve capitalization metrics can help ensure Ethena offers a sufficiently compelling product to win integrations from any stragglers or hold-outs.
Other Considerations for sENA Payouts
We believe that additional metrics should be considered as prerequisites for sENA payouts once the above thresholds have been met.
Most importantly, we believe that the reserve fund should be adequately capitalized vs Ethena’s exposures before sENA can receive fee switch distributions. Adequate capitalization will help assure USDe/sUSDe holders and other integration partners about the safety of the Ethena protocol which should help growth, and will also ensure that any losses that may occur can be covered with cash on hand rather than requiring a forced sale of ENA to plug the gap (which would likely happen at an unfavorable price).
We look forward to contributing to the development of a reserve fund/capitalization framework along with other risk committee members. The capitalization framework could be modeled on risk weighted asset frameworks used in the tradfi space, where low risk exposures such as tbills could require little to no excess reserves while higher risk exposures such as futures basis could require a greater amount of capital. This would help align Ethena’s capital requirements to the actual risk faced by the portfolio. In our view, the greatest risk factors impacting Ethena’s capital adequacy are likely coming from exchange insolvency, contract insolvency (autodeleveraging), and hacks or other issues at an off exchange custody provider.
We also believe that sUSDe payouts should meet a minimum threshold vs other benchmarks, such as tbills or onchain defi rates such as sUSDS or Aave USDC. Ensuring that sUSDe provides a compelling yield across market regimes will help position it as a “set and forget” product that users can hold for the long term without constant monitoring or micromanagement. In our experience working with other defi projects like MakerDAO/Sky, we have found that these long term / high inertia users generally provide significantly higher long term value vs more active allocators. Acquiring high quality / high LTV users can help the protocol achieve a better net interest margin over time, which will then support sustainably fee switch distributions for sENA stakers.