Introduction
This post outlines the Risk Committee’s consolidated view on two related proposals: Ethena supplying USDtb to Aave, and the onboarding of Aave’s aUSDC and aUSDT as USDe backing assets. Given that both proposals involve introducing exposure to Aave lending markets within USDe’s backing, they were assessed together. Blockworks Advisory and Untangled Credio have each produced detailed, independent analyses of the risks and implications, which will be shared separately under this post. Here, we present a unified summary of the Risk Committee’s perspective, along with actionable recommendations to guide ENA holders in their decision-making prior to voting.
Key Points: Risks & Recommendations
Supply caps
- USDC/T: Limit the USDT and USDC supply on Aave to ~ $600M (10% of their total USDT and USDC supply combined which would currently translate to $627M or below the minimum available liquidity over a 7-day horizon simulation). This restricts exposure to redemption, token-specific insolvency, and governance risks while also managing the inverse relationship between yield and available exit liquidity. Ethena is not expected to hit this cap anytime soon.
- USDtb: To mitigate the risk that looped USDtb positions could indirectly cause significant sUSDe supply volatility the market’s total supply cap should start with a conservative market supply cap of $50M, which corresponds to the current supply cap of USDtb on Aave. If caps get lifted on Aave, we will revert with an updated recommendation.
Other considerations
- Set a Minimum Yield Threshold: Ensure that any deployed capital in USDC and USDT markets earns at least a 25 basis points premium over the higher of either the risk-minimized rate (approximately 4.5%) or the risk-free rate (about 4.4%).
- Adopt an Active Management Strategy: Rather than maintaining passive positions, dynamically manage the supplied capital based on forecast minimum available liquidity and utilisation which drive the highest yield available. Monitor the exit liquidity indicators (actual and simulated) and withdraw capital when the market hits an exit liquidity of 1.25 times the supplied capital, thereby protecting against adverse liquidity shifts.
- Aave Backing Collateral Cap: Ethena should limit its initial allocation of stablecoin backing to Aave to at most 10% of the total stablecoin backing (which would currently be $332M). This cap ensures diversification of USDe’s backing and reduces dependency on Aave.