# Proposal: Ethena Supplying USDtb to Aave market

**URL:** <https://gov.ethenafoundation.com/t/proposal-ethena-supplying-usdtb-to-aave-market/572>\
**Category:** General\
**Created:** [May 12, 2025, 3:04pm UTC](https://gov.ethenafoundation.com/t/proposal-ethena-supplying-usdtb-to-aave-market/572 "2025-05-12T15:04:27Z")\
**Posts on this page:** 1\
**Showing post:** 3

<div class="post-metadata">

**Author:** ![quntangled](https://yyz1.discourse-cdn.com/flex003/user_avatar/gov.ethenafoundation.com/quntangled/32/220_2.png) [@quntangled](https://gov.ethenafoundation.com/u/quntangled)\
**Post date:** [May 14, 2025, 1:35pm UTC](https://gov.ethenafoundation.com/t/proposal-ethena-supplying-usdtb-to-aave-market/572/3 "2025-05-14T13:35:20Z")

</div>

## Introduction

In response to the[proposal for Ethena to supply USDtb to the Aave market](https://gov.ethenafoundation.com/t/proposal-ethena-supplying-usdtb-to-aave-market/572), we present an analysis of liquidity provision for USDtb on Aave. A competitive borrow rate for USDtb could enable a looping strategy where users lock sUSDe or the likes as collateral to borrow USDtb, which will then be used to buy more sUSDe. A narrower spread between USDtb borrow rate and sUSDe yield could lead to a reduction in USDe supply. As such USDtb provision into Aave could lead to heightened volatility of USDe supply.

## A framework for supplying USDtb to Aave

With Ethena’s role as the main/sole supplier of USDtb on Aave, at least at the start, our analysis focuses on dynamically controlling the supply of USDtb into Aave to achieve two objectives:

- Maintain Competitive Borrow Rates: Ensure the borrow APR remains below a predefined threshold, ( r ), which represents the target lowest APR among stablecoin lending options.
- Manage Liquidity Risk: Limit the total supplied USDtb to a maximum cap, ( k ), preserving token liquidity outside Aave.

Using Aave’s interest rate model, we derived the minimum supply needed to keep the borrow APR at or below ( r ), assuming utilization stays below Aave’s optimal threshold (92%). For instance, with a borrow demand of 100 million USDtb and a target APR of 4%, approximately 163 million USDtb to be supplied to maintain the desired rate.

 ![|563x436.30301850378333](https://canada1.discourse-cdn.com/flex003/uploads/ethena/original/1X/0172241db499b520f42ff11175c0c5e6490f1af2.jpeg)

This framework allows Ethena to adjust supply based on expected demand and desired APR.

## Recommendation

Our analysis supports Ethena supplying USDtb to Aave, provided supply levels are dynamically managed using the framework outlined:

- Setting an initial supply based on current borrow demand and a conservative APR target, subject to Aave’s supply cap of $50m at the beginning.
- Monitoring utilization and adjusting supply to maintain the target APR, while respecting the cap ( k ).

For detailed methodology, refer to our full analysis ([link-to-whitepaper](https://drive.google.com/open?id=1eiuogxy2nIb9oZWT-3wcgdElKaDAONqh&usp=drive_fs)).

---

_[View the full topic](https://gov.ethenafoundation.com/t/proposal-ethena-supplying-usdtb-to-aave-market/572)._