Purpose
LlamaRisk acts as legal reviewer for the Master Loan Agreements (“MLAs”) through which Ethena (BVI) Limited deploys reserve-backing assets to institutional lending counterparties. This note describes the criteria we apply when assessing the viability of each prospective lending partner from a contractual and structural standpoint. It is intended as a public reference for the Ethena community. It does not reproduce the confidential terms of any individual agreement, and it is not legal advice.
Every MLA we have reviewed for Ethena to date has been assessed against the same underlying framework. The framework is designed around a single governing question: what happens to USDe reserve-backing assets if this counterparty, this agreement, or this deployment goes wrong?
I. Counterparty & Entity Due Diligence
Before the agreement terms themselves, we assess who Ethena is actually contracting with. The counterparty’s identity, regulatory standing, and corporate structure often carry more risk than any individual clause.
Entity identification and corporate structure. We confirm the signing entity, its jurisdiction of formation, its position within the broader corporate group, and whether the contracting entity is the same entity that holds the operational licenses, the customer relationships, or the assets.
Jurisdictional and regulatory standing. We assess the counterparty’s home jurisdiction, the licenses it holds (trust, banking, money transmission, VASP, MSB, or analogues), and the substantive regulatory regime that governs its conduct.
Enforcement history and standing. We review publicly available enforcement records, supervisory actions, material litigation, and known operational incidents involving the counterparty or its immediate affiliates.
II. Collateral & Custody Mechanics
Collateral terms are the single most consequential part of any MLA for Ethena. This is where a credit-risk agreement either does, or does not, actually protect the reserve.
Collateral composition and eligibility. We examine what the counterparty may post as collateral, including which assets, from which issuers, and under what valuation methodology. We flag collateral baskets that include illiquid assets, private receivables, or tokens with limited secondary-market depth. Where the collateral is itself subject to rehypothecation or onward pledging, we assess whether Ethena’s claim is genuinely senior.
Minimum collateral ratios and margin mechanics. We identify whether minimum overcollateralization ratios are set in the master agreement itself or left to individual term sheets and confirmations.
Auto-liquidation rights. Ethena relies on collateral liquidation as a primary credit mitigant. We flag any agreement that makes liquidation contingent on counterparty cooperation, court process, or extended notice periods that would foreseeably be overrun by market movement.
Custody architecture and segregation. We examine where the borrowed assets and the posted collateral are actually held, whether in segregated accounts, omnibus accounts, on-exchange, at an affiliate, or on-chain.
Security interest perfection. Where the structure purports to give Ethena a security interest in collateral, we assess whether that interest is perfected in the relevant jurisdiction, whether it is exclusive or shared, and whether the perfection regime contemplated in the agreement matches the actual location and form of the collateral.
Use restrictions on borrowed assets. We examine whether the counterparty’s use of Ethena’s assets is restricted (to specified trading activities, specified venues, or specified counterparties) or open-ended.
III. Credit, Default & Enforcement
This pillar assesses what happens when something goes wrong. The most dangerous deficiencies in this area are typically omissions, namely triggers that should exist but do not.
Events of default and coverage. We work through the default catalogue and identify missing triggers. Non-payment and insolvency are universally present. We focus on whether the agreement also captures loss or suspension of regulatory license, sanctions designation (of the counterparty or a controlling affiliate), change of control, material adverse change, cross-default to other material obligations, breach of use restrictions on borrowed assets, and breach of financial or operating covenants.
Cure periods and grace windows. We review the length of cure periods for each default trigger and assess whether they are calibrated to the nature of the breach.
Self-help and liquidation rights. We assess whether Ethena has contractual self-help rights on default, namely the ability to seize and liquidate collateral, apply on-chain balances, or call on segregated accounts, without needing to initiate court process in a foreign jurisdiction.
Recall and redelivery mechanics. We examine the notice period required to recall assets, the redelivery timeframe, and any asymmetry between Ethena’s return obligations and the counterparty’s.
Limitation of liability and damages carve-outs. We review whether the agreement’s liability cap and consequential-damages exclusion carve out the specific categories of loss Ethena would most foreseeably suffer, principally losses arising from failure to return borrowed assets.
Broad risk acknowledgements. We flag broad investor-risk or cryptoasset-risk acknowledgements that could be read to undermine claims the counterparty would otherwise be liable for.
IV. Operational, Reporting & Governance
The final pillar addresses the mechanics that affect Ethena’s ability to monitor, audit, and adjust the relationship over time.
Reporting obligations. We assess the reporting package, covering amounts outstanding, collateral posted, current market value, and any borrower-level disclosures, and whether that package is sufficient for Ethena’s attestation needs.
Audit and information rights. We assess Ethena’s right to request additional information, to conduct or commission audits on material triggers, and the conditions under which those rights can be exercised.
Key personnel, change of control, and operational continuity. We examine whether change of control, departure of named key personnel, or material reorganization of the counterparty triggers a notification obligation, a consent right, or an early-termination right.
Amendment and waiver mechanics. We examine how the agreement can be amended, by whom, and on what notice, with particular attention to any provisions that allow unilateral amendment of term sheets, fee schedules, or operational parameters.
Governing law, dispute resolution, and forum. We review the governing law, dispute resolution mechanism (litigation vs. arbitration), and exclusive forum, assessing whether Ethena can realistically enforce against the counterparty and the collateral in the chosen jurisdiction.