To address this proposal, we have developed a standardized custodian onboarding framework for USDe’s backing assets, ensuring consistent due diligence and transparent risk assessment for partners, stakeholders, and the Ethena community.
Custodian Onboarding Framework for Ethena
Custodians serve as the backbone of security for Ethena. Being a crypto-focused stablecoin that depends on hedging delta-neutral positions on different exchanges, means that it would be exposed to a lot of counterparty risk from exchanges would it not be for an enshrined backing custody solution. Ethena maintains USDe’s peg stability through hedging strategies on centralized exchanges, but rather than holding assets directly on exchanges, it uses “Off-Exchange Settlement” providers like Copper, Ceffu, and Fireblocks to custody its backing assets while enabling delegation to exchanges for trading without ever transferring actual ownership. These providers allow Ethena to settle profit and loss from derivatives positions frequently, significantly reducing exposure to exchange failure risk between settlement cycles, while ensuring that Ethena retains beneficial title over all assets. This means that in the event of an exchange failure, Ethena can quickly redirect funds to alternative exchanges to maintain its hedging positions. This institutional-grade custody model separates asset ownership from trading execution, providing the security benefits of off-exchange storage while maintaining the liquidity access needed for effective delta hedging operations.
As per the attestation, published in October 2025, Copper and Ceffu are the main custodians. As of 23:59 UTC October 26th 2025, USDe supply was 10.371bn, and correspondingly:
- $2.914bn has been verified to be held within solutions offered by Copper (including unrealized P&L);
- $2.147bn has been verified to be held within solutions offered by Ceffu;
- There was $5.245bn within Ethena’s Coinbase Web3 Wallets;
- There was $72.272m within Ethena’s mint/redeem contract available to satisfy redemptions.
Critical custodian functions:
- Safely custody protocol backing assets, transfer assets between smart contracts and users, and delegate/undelegate backing assets between Off-Exchange Settlement providers and centralized exchanges.
- Enable Ethena to mitigate exchange failure risks by keeping assets off exchanges while still available to collateralize derivative positions.
- Facilitate daily PnL settlement with exchanges to avoid large balances owed to the protocol.
Custodian Evaluation Framework
1. Security
1.1 Security Infrastructure
- Wallet architecture (hot/warm/cold wallet ratio)
- MPC (Multi-Party Computation) or multi-sig technology
- Security certifications (SOC 2, ISO 27001, etc.)
- Security audit history (frequency and results)
- Cybersecurity protections and cyber insurance coverage
- Disaster recovery and business continuity plans
1.2 Operational Track Record
- Years operating in crypto custody
- Total AUM (Assets Under Management)
- History of security incidents or fund losses
- Track record with other large-scale DeFi protocols
- Reputation in institutional market
1.3 Legal Structure
- Asset segregation structure (bankruptcy remote)
- Jurisdiction and regulatory framework
- Licenses and regulatory registrations
- Clarity on asset ownership in insolvency scenarios
- Insurance and guarantees offered
2. Operational Capability
2.1 Accessibility & Availability
- Guaranteed SLA (Service Level Agreement) - uptime %
- Delegation/undelegation speed (target: seconds)
- 24/7 operational capacity
- System redundancy and failover capabilities
- Downtime history and mean time to resolution
2.2 Exchange Integration
- List of supported exchanges (verify overlap with Ethena’s needs)
- Established legal agreements with major exchanges
- Clearloop capability or similar mechanism for daily PnL settlement
- Process for exchanges to post collateral
- Experience with margining and derivatives
2.3 Scalability
- Capacity to support growing volumes (2-3 year projections)
- Delegation limits per exchange
- Transaction throughput
- Operational costs and fee structure
- Flexibility to add new exchanges/products
3. Ethena-specific Requirements
3.1 Essential Technical Features
- Ability to prove onchain existence and control of funds
- Integration with Ethena smart contracts (mint/redeem)
- Robust API for hedging automation
- Support for specific assets (ETH, stETH, BTC, USDC, USDT)
- Independent monthly attestation capability
3.2 Risk Management
- Real-time PnL monitoring processes
- Alert systems and risk limits
- Procedures in case of exchange failure
- Response speed to transfer positions between exchanges
- Ability to dispute erroneous settlement requests
3.3 Transparency & Reporting
- Capacity to provide verifiable monthly attestations
- Reporting granularity (breakdown by exchange, asset, etc.)
- Reconciliation frequency
- Real-time dashboard access
- Third-party auditability
4. Exclusion Criteria
Immediate disqualifiers:
- History of client fund losses
- Jurisdiction conflicting with Ethena requirements
- Inability to perform daily PnL settlement
- Lack of bankruptcy-remote asset segregation
- Inadequate insurance coverage
- Inability to provide verifiable attestations
- SLA < 99.9% uptime
- Cannot integrate with >50% of Ethena’s critical exchanges
- Undisclosed conflicts of interest
- Opaque governance structure
5. Decision Process
Weighted Scoring System:
| Category | Weight | Score (0-10) | Minimum Acceptable |
|---|---|---|---|
| Security & Custody | 40% | 8/10 | |
| Operational Capability | 30% | 7/10 | |
| Ethena-Specific Requirements | 30% | 8/10 |
Approval Threshold:
- Minimum total score: 7.5/10
- All minimum criteria per category must be met
- No critical red flags can be present
Final Recommendation: YES/NO/CONDITIONAL
- YES: Score ≥ 8.0, no red flags, clear strategic value
- NO: Score < 7.5 or presence of critical red flags
- CONDITIONAL: Score 7.5-7.9, requires specific improvements or trial period
Additionally, a legal review should be conducted on the legal structure of any new custodian to be onboarded by specialized counsel.
It is advised to use a phased onboarding, starting with a small allocation first and scaling progressively. Furthermore, contingency planning should be done from the start by Ethena, where an exit strategy is defined if performance doesn’t meet expectations, based on established KPIs and a regular review cadence.