Risk Committee Reelection Processs

Risk Committee
2

LlamaRisk Intent for Risk Committee Renewal

We are thankful for the confidence of Ethena’s stakeholders and community during our initial term on the Risk Committee. Over the previous term, we have demonstrated dedication and expertise in proactively identifying, analyzing, and mitigating risks in the protocol as it has expanded to $6B TVL. Key contributions during our time on the Risk Committee include:

  • Development of the Ethena Risk Portal,
  • Quantitative research on Reserve Fund drawdown scenarios,
  • Lead role in independent legal advisory to Ethena, and
  • Formation of working groups to enhance collaboration in highly important areas of research.

LlamaRisk places high value on our partnership with Ethena. The team shares our values of prioritizing risk transparency and a firm commitment to the protocol’s users. We have developed a personable and productive working relationship over the previous term, which further boosts our confidence that Ethena is in good hands and has a bright future ahead. Therefore, we are pleased to share that LlamaRisk will be seeking to renew our seat on the Risk Committee for another productive term.

Our Contributions

Ethena Risk Portal

LlamaRisk’s Ethena Risk Portal marks a crucial achievement during our term of engagement. It provides real-time monitoring for USDe collateral allocation, minting and redemption events, redemption capacity over time, and withdrawals. The dashboards offer a detailed breakdown of the spot asset positions held by Ethena across all CEXs, along with comprehensive asset allocation insights. Reserve fund capital and over-collateralization ratios are tracked continuously, while USDe and sUSDe liquidity is monitored on Curve and Uniswap.

The risk portal also includes a simulation feature that enables users to model various parameters—negative funding rates, stablecoin allocations, daily redemption rates, and other factors—to visualize the reserve fund’s capital trajectory and assess how different scenarios may influence drawdowns over time.

These dashboards proactively monitor the safety of Ethena’s protocol and keep us informed about changing situations, especially for scenarios that have implications regarding protocol solvency and the USDe peg. Continuous monitoring also enables us to perform more insightful risk-related research and spot potential stress points before they become critical.

Reserve Fund

One of the main focus points during the initial term was the Reserve Fund. Serving as an important risk mitigation component for Ethena’s protocol and a buffer for full USDe collateralization, it required in-depth attention from our end. We have:

  • Advised on RWA allocations to the Reserve Fund, developing and applying an RWA evaluation matrix which later served to determine the winning assets and estimate risk-adjusted allocation rates.
  • Developed the Reserve Fund capitalization methodology (V1, V2), estimating the amount of capital needed to cover for market and operational risks. This methodology was recently improved to account for changes in Ethena’s operational strategy (e.g. maintaining a larger stablecoin collateral buffer, exiting from perpetual positions over short-term periods). In-depth research has allowed us to better estimate the needed risk coverage for Ethena’s protocol and to more objectively evaluate the needed Reserve Fund allocation amounts under evolving market conditions.
  • Launched an internal Reserve Fund Working Group where we aim to collaborate with other Risk Committee members and Ethena Labs in order to refine and improve our Reserve Fund methodology further.

Legal & Regulatory Advisory

Leveraging our in-house legal and regulatory expertise, LlamaRisk led sensitive legal analyses that were shared privately with Ethena Labs and Ethena Foundation. These included legal updates on the Reserve Fund, USDe/sUSDe, and ENA.

Regarding the latter, LlamaRisk has been actively contributing to the ENA fee switch implementation process, providing a preliminary legal analysis of the ENA fee switch proposal, a more comprehensive legal memo on the fee switch, and research of optimal parameters for the ENA fee switch proposal to define success metrics that serve as a prerequisite to the fee switch.

To bolster cross-functional collaboration on this matter, LlamaRisk joined forces with Ethena Labs, Ethena Foundation, and Lemma Solutions within a newly established Legal Working Group. The group’s initial focus has been the review of ENA and sENA token structures, fee distribution mechanisms, and the development of buyback programs. A memo of the inaugural meeting has been shared with Risk Committee members to clarify the legal specifics of the fee switch.

As part of this ongoing commitment, LLR is preparing for a second Legal Working Group session. This upcoming meeting will concentrate on public disclosure of buyback activities and updates to sENA-related documentation. In this capacity, LLR remains committed to:

  • Liaising with committee members, Ethena Labs, and Ethena Foundation to ensure robust legal resilience measures are embedded within the fee switch architecture and future developments.
  • Providing continued risk evaluation and advisory services for new proposals and integrations on Ethena protocol.
  • Delivering regular legal briefs on the evolving legal and regulatory environment, highlighting key developments and their implications for Ethena’s risk and compliance posture.

Growth

We devoted analysis toward growth initiatives proposed in the governance forum, both for new USDe backing assets and decentralized hedging venues for Ethena. Regarding these subjects, we have provided:

Our analyses are characterized by a comprehensive evaluation that spans technical and regulatory considerations, with an assessment of maturity and adoption metrics to advise on growth-related decisions. We are diligent in identifying and communicating any cause for concern and push the conversation forward with followup questions whenever clarity is lacking.

Future Contributions

During the second term of the Risk Committee engagement, LlamaRisk plans to continue carrying out active work on multiple fronts:

  • ENA fee switch,
  • Reserve Fund capitalization,
  • Legal & regulatory screening,
  • USDe/sUSDe stability,
  • Hedging venues expansion,
  • Addressing any other incoming initiatives or governance proposals.

Moreover, we plan to continue maintaining and improving the Risk Portal, implementing additional data points, and including simulations for the updated Reserve Fund methodology.

Finally, we are eager to continue our active roles in leading the Legal and Reserve Fund working groups. The unique strengths of Ethena’s Risk Committee are diverse perspectives and opportunities for collaborations between the top names in DeFi risk services. Together, our priority is to continue fostering cooperation between members, as these working relationships are foundational to the committee’s effective service to Ethena.

It has been a pleasure to serve Ethena over this past term and we look forward to continuing the partnership with the Ethena team, stakeholders, and our fellow Risk Committee members!

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