Proposal: Reduction of Risk Committee members from 5 to 3

Risk Committee
4

To the Ethena stakeholders and the broader community,

LlamaRisk is standing for re-election to the Ethena Risk Committee as it transitions from a five-member to a three-member structure.
This transition places a premium on continuity, coordination, and clear ownership of high-stakes risk surfaces. During the current term, LlamaRisk has served not only as a contributor, but as a coordinating lead across reserve management and legal-governance risk — roles we intend to continue and deepen.

We are grateful for the trust placed in us throughout Term 3 and for the opportunity to help guide Ethena through a period of exceptional growth and market volatility. As USDe scaled rapidly, our focus has been on ensuring that growth was matched by rigor: transparent risk frameworks, conservative capital assumptions, and decision-ready analysis that continue to reinforce confidence in the protocol’s resilience and long-term sustainability.

Key Contributions During Our Term

During Term 3, we focused on scaling Ethena’s risk frameworks in step with protocol growth while strengthening transparency and governance coordination.

Reserve Fund Management and Monitoring

We led and coordinated ongoing analysis of the Reserve Fund as USDe supply expanded sharply, peaking at $14.8B TVL in October 2025. Our work has focused on ensuring that the Reserve Fund remains a credible backstop against tail-risk market events, rather than a static buffer.

To support this, we upgraded the Ethena Risk Monitoring Dashboard, dedicating a live page where the community can continuously observe our Reserve Fund capitalization recommendations alongside monthly reports. This tooling provides real-time visibility into protocol health and reinforces confidence in Ethena’s resilience to tail-risk events.

We maintained a consistent monthly cadence of Reserve Fund analysis, coordinating closely with Blockworks Research to align methodology and ensure coherent outputs to governance:

This work has helped shift Reserve Fund governance toward scenario-aware, stress-based capital adequacy, rather than reliance on fixed heuristics. By maintaining continuity across Reserve Fund methodology, stress-event analysis, and related legal and governance design, LlamaRisk has helped keep the reserve fund adequacy evaluation process optimized and focused as the protocol evolves and committee membership changes.

Response to Stress Events & Operational Resilience

We demonstrated the ability to respond rapidly and constructively to real-world stress events:

  • Following the October 10th USDe pricing dislocation on Binance, we published a detailed breakdown explaining the mechanics of the event, clarifying impacts, and separating transient market structure effects from protocol fundamentals.
  • We advised on the implementation of USDe last-resort redemptions directly on exchanges, introducing a critical safety valve that improves liquidity depth during extreme dislocations without undermining overcollateralization guarantees.

These efforts focused not only on diagnosis, but on structural improvements that reduce the likelihood and severity of future stress events.

Protocol Growth, Legal Diligence, and Governance Risk

We have actively supported Ethena’s secure expansion, balancing innovation with risk controls.

  • We provided structured risk input on upcoming backing asset integrations (proposals to be published soon), ensuring diversification improves resilience rather than obscuring correlated risk.
  • We conducted detailed legal and operational reviews of custodian integrations, including Kraken, Anchorage Digital, and Zodia, translating regulatory and custody constraints into actionable risk guidance for governance.
  • We have taken a leading role within the Legal Working Group, including driving the development of the risk terminology manual as part of the broader effort on fee-switch communication guidelines.

Importantly, LlamaRisk brings a unique skill set to the Risk Committee, with a specialized legal and regulatory risk capability embedded in its mandate. This has enabled close, ongoing collaboration with Ethena Labs’ legal team and external U.S. and BVI counsel, positioning us to translate legal constraints directly into protocol-level design and governance decisions.

Aave Integration & Cross-Protocol Risk Coordination

Ethena’s growth and risk profile are increasingly shaped by its close integration with Aave, including the deployment of USDe reserves into Aave markets and the promotion of Pendle markets that enable leveraged use of Ethena assets. These integrations are not peripheral; they are central to Ethena’s capital efficiency, liquidity dynamics, and user growth strategy.

LlamaRisk is uniquely positioned at this intersection. As the risk provider for Aave, we work closely with Aave governance, core contributors, and service providers on a continuous basis. This gives us a practical understanding of how risk decisions propagate across both ecosystems, and allows us to anticipate second-order effects that arise when Ethena and Aave strategies interact — particularly under stressed market conditions.

This cross-protocol perspective has direct risk relevance. Decisions around reserve deployment, leverage pathways, liquidation dynamics, and venue concentration cannot be evaluated in isolation when Ethena and Aave are tightly coupled. Our role enables tighter coordination, faster escalation when conditions change, and clearer communication between stakeholders on both sides.

Our Vision for the Next Term

If re-elected for Term 4, LlamaRisk will focus on owning and coordinating the risk surfaces most critical to Ethena’s next phase of growth — where strategy complexity, capital efficiency, and revenue durability increasingly intersect.

Scaling via Strategy Diversification

Ethena’s growth is no longer defined solely by balance-sheet expansion but by diversification of strategy primitives. This includes:

  • evaluating new hedging venues as well as hedging venue types,
  • assessing shifts from funding-rate-dependent delta hedging toward on-chain yield strategies and other diverse strategy allocations,
  • and understanding how execution, liquidity, and unwind dynamics differ across these strategy classes.

Our role is to ensure diversification improves systemic resilience, rather than introducing hidden correlations or brittle failure modes.

Adaptive Reserve Fund & Portfolio-Level Risk Modeling

As Ethena’s strategy mix evolves, the risk profile of the protocol changes materially. Reserve Fund modeling must therefore move beyond single-regime assumptions toward portfolio-level aggregation across heterogeneous strategies, each with distinct liquidity, convexity, and tail-risk characteristics.

We will continue aligning closely with Ethena Labs and our Risk Committee partners as yield opportunities evolve, ensuring that:

  • Reserve Fund models reflect the true risk distribution of deployed strategies,
  • capitalization recommendations remain credible under stress,
  • Ethena can pursue higher-quality yield and revenue opportunities without eroding market confidence.

This quantitative work is foundational to participant trust, competitive positioning, and long-term adoption. Clear, defensible risk frameworks reduce uncertainty for external market makers, integrators, and allocators, supporting deeper liquidity and broader adoption of Ethena products.

Optimizing sUSDe Unstaking & Liquidity Flows

A key focus for the upcoming term will be a careful re-evaluation of the sUSDe unstaking cooldown mechanics, which has been statically set at 7 days since inception. While this design choice was appropriate and conservative during Ethena’s early growth phase, it may be overly restrictive under current or prospective portfolio regimes.

As Ethena’s backing strategies and liquidity profile evolve, the duration risk of the underlying portfolio becomes a more relevant determinant of safe redemption timelines than static assumptions. Using quantitative modeling and stress analysis, it is possible to assess whether shorter, well-defined cooldown periods could be supported without increasing systemic risk, particularly during regimes where portfolio liquidity and unwind characteristics are demonstrably robust.

Our objective is to ensure that any adjustments:

  • remain consistent with Reserve Fund and redemption survivability assumptions,
  • preserve user trust and predictability,
  • and improve Ethena’s competitiveness and capital efficiency without sacrificing resilience.

Legal Engineering & High-Stakes Governance Transitions

The ENA fee switch represents a pivotal transition for Ethena, carrying legal, economic, and reputational risk. Having been involved in this work since its earliest stages, we are positioned to deepen our contributions to the legal engineering and implementation sequencing behind the fee switch mechanics, ensuring the mechanism is robust, compliant, and governance-ready. This will require close coordination and ongoing collaboration with Ethena Labs and the engaged U.S. and BVI counsels to ensure the structure is legally robust and implementation-ready.

In parallel, we will remain focused on all ongoing and future integrations and service provider engagements where Risk Committee approval is sought. Many of these initiatives benefit from an independent legal review or opinion, and this is an area where LlamaRisk is particularly well-positioned to lead and deliver value.

Closing

As the Risk Committee becomes more concentrated, Ethena benefits from members who can own ambiguous risk surfaces, coordinate across technical and legal domains, and provide continuity under stress. LlamaRisk has played this role throughout the current term, and we are committed to continuing it as Ethena enters its next stage of maturity.

We look forward to continuing our partnership with the Ethena community, Ethena Labs, and our fellow Risk Committee members.

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