Summary
This proposal seeks to onboard Aave’s aUSDC and aUSDT as eligible backing assets for USDe. Both assets offer deep liquidity and competitive return opportunities, enhancing the resilience and capital efficiency of USDe. Their inclusion aligns with Ethena’s goal of diversifying collateral sources while maintaining robust risk management practices.
Asset Overview
| Issuer | Token | Underlying Asset | Yield Source | 3m Avg APY | 6m Avg APY | Supply (Ethereum) |
|---|---|---|---|---|---|---|
| Aave | aUSDC | USDC | Interest accrued from borrowers on Aave | 8.6% | 6.8% | $880M |
| Aave | aUSDT | USDT | Interest accrued from borrowers on Aave | 7.4% | 5.8% | $1.4B |
Capital Efficiency
As part of the backing management of USDe there are often large holdings of liquid USDC and USDT in the USDe backing to facilitate withdrawals. Allocating to aUSDC and aUSDT with a portion of the USDe backing helps improve the capital efficiency of these non rewarding assets.
The yields for both assets regularly outperform treasury rates thanks to increased demand for borrow on Aave. Of particular interest to Ethena are the spikes in yields when borrow demand increases, as we saw in December when yields for both assets spiked above 20% consistently. In these scenarios, the protocol could benefit from yield spikes without taking on any additional risk. In an environment where interest rates on T-Bills are likely to be cut next year, aUSDC and aUSDT could be compelling options.
Ethena also has allocated over $1.3bn to USDS, which is reducing its rates as market rates fall. Replacing some of this allocation with aUSDC and aUSDT might make sense from a diversification point of view, reducing idiosyncratic risk to any one issuer.
Implementation
If approved by the Ethena Risk Committee, Ethena will integrate aUSDC and aUSDT into USDe’s backing asset framework up to a maximum of 30% of the total supply of both aUSDC and aUSDT respectively on Aave. The allocation will be periodically reviewed based on liquidity conditions, risk factors, and yield efficiency.
Conclusion
Onboarding aUSDC and aUSDT as USDe backing assets could enhance protocol diversification, improve yield efficiency on non-rewarding USDT and USDC, and strengthen USDe’s liquidity profile. This proposal aligns with Ethena’s long-term vision of maintaining a robust and adaptive collateral base for USDe.
We welcome feedback from the community and look forward to discussions regarding the integration of these assets into USDe’s backing.