ENA Fee Switch Parameters

General
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As outlined in the announcement, the Risk Committee has agreed on success metrics for considering the fee switch. This depends later on an assessment of whether the Reserve Fund is sufficiently capitalized and sUSDe yield remains competitive. Below are our recommendations and rationale for the three success metrics:

USDe Circulating Supply

  • Recommendation: >$6B
  • Rationale: USDe has consistently ranked among the top five stablecoins by market cap over the past few months. Revenue distribution should occur when the protocol is in a position of strength and has established itself as a competitive leader. The stablecoin market cap has grown steadily, with DAI and USDS currently at ~$5.5B. A $6B circulating supply would position Ethena as the third or fourth largest stablecoin, behind USDC or USDT, reinforcing its importance in the market.

Cumulative Protocol Revenue

  • Recommendation: >$250M
  • Rationale: At the time of this deliberation, protocol revenue stood at approximately $166M. Revenue sharing directly impacts the protocol’s financial health, linking it to revenue and costs. Using an absolute metric to simplify the framework, $250M strikes a balance between financial stability and ensuring excess revenue doesn’t remain idle. At this point, sharing revenue could align token holders with protocol growth without stifling further growth.

CEX Adoption

  • Recommendation: 4/5 of the top 5 exchanges by derivatives volume
  • Rationale: A key goal for Ethena is USDe adoption on major centralized exchanges as rewarding margin collateral. The majority of derivatives volume is still concentrated on CEXs, and achieving adoption signifies USDe’s integration into the industry’s core infrastructure. This would significantly expand its use cases, increasing circulating supply and protocol revenue.

These success metrics are primarily growth-oriented and do not pose direct risks to Ethena as a protocol. However, the more pressing consideration is ensuring that:

  1. The Reserve Fund is adequately capitalized.
  2. sUSDe yield remains competitive to sustain long-term attractiveness.

To address Reserve Fund capitalization, a robust framework must be defined. LlamaRisk has provided a preliminary drawdown analysis via their dashboard, which Risk Committee members can review and refine. Alternatively, Block Analitica has proposed modeling the framework after risk-weighted asset methodologies, offering a distinct approach. We’ll collaborate with the committee to develop and finalize a transparent and actionable framework.

To summarize, once the three success metrics are achieved, the priority order for yield distribution should be:

  1. Reserve Fund: First allocate yield to ensure the Reserve Fund is sufficiently capitalized (if/when needed).
  2. sUSDe Yield: Ensure sUSDe maintains its status as a high-yield stablecoin, consistently outperforming competitors like sDAI.
  3. sENA Revenue Sharing: Remaining yield can then be distributed to sENA token holders.
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