Ethena’s 1st Monthly Governance Update

BlockworksAdvisory
Mon, 07 Apr 2025 16:01:49 +0000
General

Welcome to the first installment of the new monthly Ethena governance update. In this report, we’ll highlight notable developments across the Ethena ecosystem and recap the Risk Committee’s recent efforts, ensuring you stay informed and up to date.

Key Takeaways

Risk Committee Second Term Began: A refreshed Risk Committee kicked off in February 2025 with new and returning members. Subcommittees were established to streamline proposal reviews and focus on key areas like backing asset approval and protocol integrations.

Governance Process Formalized: The reelection process now includes formal applications, KYC/KYB, and conflict-of-interest checks, followed by ranked Snapshot voting. A rotating seat structure ensures continuity and fresh input.

Major Protocol Integrations: USDe was listed as margin collateral on Deribit and MEXC; USDtb listed on Bybit; and USDe was integrated into PumpSwap, expanding DeFi and CeFi reach.

Transparency and Monitoring Upgrades: Integration of Chaos Labs’ Edge PoR Oracle will deliver real-time collateral reporting, enhancing trust and transparency in USDe backing.

Proposal Pipeline Active: Key proposals under review include onboarding aUSDC/aUSDT as USDe backing assets.

DeFi Risk Framework Advancing: Ongoing efforts to size the Reserve Fund are supported by modeling exchange slippage and dynamic funding rate volatility, aiming for resilience in extreme scenarios.

Refresher on Ethena Governance

Risk Committee Mandate
The Risk Committee oversees key risk aspects of the Ethena protocol. This includes ensuring diversification across hedging venues, deciding which types of backing assets to accept, vetting and approving new custody partners and hedging platforms, and implementing size and risk limits. Committee-level changes require unanimous approval from voting members, and any veto must be accompanied by an explanation.

Committee Composition
The committee is made up of voting members, with Ethena Labs Research as a non-voting member. Organizations rather than individuals generally hold seats, and each organization designates a representative. In proposals, a seven-day discussion period precedes a vote. If no member vetoes the proposal at vote’s end, it proceeds to the Ethena Foundation.

Election & Terms
The first committee election took place six months after the Risk Committee’s creation, with all seats up for re-selection. After that initial vote, which took place in February 2025, three member seats come up for confirmation or replacement every six months. This rotating structure aims to maintain continuity while periodically introducing fresh perspectives. To stand for election, nominees must pass KYC/KYB screening and conflict-of-interest checks.

Reelection Process
Candidates submit a formal application detailing their qualifications, entity background, and potential contributions to the committee. The Ethena Foundation reviews applications, performs screening, and compiles a shortlist of eligible entities. This shortlist is posted publicly before a Ranked Voting round on Snapshot. Once votes are tallied, newly elected or re-elected committee members are announced, and those members begin their term following any additional final checks.

Latest Election Outcome
The most recent vote saw six entities confirmed as the Risk Committee. Following thorough screening, these six passed all requirements for background checks and conflict-of-interest clearance. The final seats are held by Ethena Labs Research, Block Analitica, Llama Risk, Untangled, Blockworks Advisory, and Steakhouse Financial. These members now guide the risk framework and strategic decisions under the committee’s mandate.

Ecosystem Updates

Ethena announced its 2025 roadmap “Convergence” aimed at bridging TradFi and DeFi through institutional-grade infrastructure, leveraging USDe, USDtb, and the new synthetic iUSDe stablecoin. Link

USDtb surpassed $1B in supply, becoming the largest holder of BlackRock’s BUIDL fund (>70% ownership), positioning Ethena as a leading player in tokenized asset adoption. Link

USDe is now integrated as a core asset on PumpSwap, the new native DEX from Pump.fun, enhancing DeFi liquidity and composability for the Ethena ecosystem. Link

USDe launched as margin collateral on Deribit and MEXC, enabling up to 9% APR for users and expanding its utility across derivatives and centralized trading platforms. Deribit | MEXC

USDtb was listed on Bybit and will be available as margin collateral, further integrating Ethena’s stablecoins into centralized finance and derivatives markets. Link

Aave Temp Check Proposal to Onboard USDtb is live. Link

Ethena is integrating the Edge Proof of Reserves Oracle with Chaos Labs, which will enable real-time daily transparency into the collateral backing of USDe. Link

DeFi Economic Risk Updates

Main Metrics

Protocol backing ratio: 101.19%

Reserve Fund: $60.9M

Total USDe supply: $5.26B

Total backing: $5.32B

Fee Switch Metrics

USDe circulating supply: >$6bn

→ currently: $5.26B

Cumulative protocol revenue: >$250m lifetime

→ currently: $328.4M

CEX adoption: USDe integrated on 4 of top 5 centralized exchanges by derivative volumes

→ currently: 3 of the top 5 (Binance & OKX remain)

sUSDe APY spread vs benchmark rate: between 5.0-7.5% over benchmark rate

→ currently: 1.62%

USDe Liquidity

USDe liquidity remains highly concentrated on Ethereum, with approximately 98.5% of the circulating supply residing on the network. Total liquidity across DeFi protocols currently stands at around $100M, with Curve hosting the majority. USDe is primarily paired with other stablecoins—notably FRAX, followed by USDT and USDC. In terms of distribution, the majority of USDe is held within the Ethena ecosystem, largely in the staking contract, as well as across platforms like Ethereal and Pendle. A significant portion is also present on centralized exchanges such as Bybit, reflecting Ethena’s growing integration across both DeFi and CeFi environments.

Collateralization

USDe’s stable backing has steadily increased throughout last month, reflecting Ethena’s strategic shift toward liquid stablecoins as market conditions deliver lower or negative funding rates. This is in line with the broader objective of reducing risk by unwinding hedging positions when they become less capital-efficient. As of now, approximately 72% of USDe is backed by liquid stablecoins, while the remaining 28% is allocated to delta-neutral positions. These include 17% in BTC, 6% in ETH, 4% in ETH LSTs, and 1% in SOL. On the venue front, Ethena’s active hedging positions are currently concentrated across four centralized exchanges—Binance, Bybit, OKX, and Deribit—with no exposure to Bitget at this time.

Pendle Maturities

Recent

sUSDe: 27 Mar 2025 → $1.07B TVL at maturity

USDe: 27 Mar 2025 → $440M TVL at maturity

SY sUSDe expired just recently, closing out with a strong $1.07b in TVL at maturity. Notably, its expiry had a clear impact on the broader ecosystem—specifically on the USDe staking ratio, which dropped as sUSDe holders redeemed their positions. The staking ratio fell from 46.2% on March 26 to 41.0% on March 27, and has since stabilized around 38%. This drop effectively acted as a positive multiplier on sUSDe’s APY, as fewer stakers translates into higher rewards for those who remained.

Future

USDe (Bera Concrete): 10 Apr 2025

sUSDe (Bera Concrete): 10 Apr 2025

eUSDe: 29 May 2025

sUSDe: 29 May 2025

USDe: 31 Jul 2025

sUSDe: 31 July 2025

sUSDe: 25 Sep 2025

USDe: 25 Sep 2025

Risk Committee Updates

Second term Kickoff

The second term of the Ethena Risk Committee began in late February with a meeting that brought both returning and new participants together. Four members from the first term—Block Analitica, Blockworks Advisory, Llama Risk, and Steakhouse Financial—were joined by a new member, Untangled. The group agreed to hold at least one scheduled meeting each month, supplemented by ad-hoc sessions to address urgent matters.

To boost efficiency, the committee decided to establish subcommittees responsible for specialized topics, building on existing working groups such as the Reserve Fund (led by Llama Risk and Blockworks Advisory) and Legal (led by Llama Risk and Ethena Labs). Additionally, rather than requiring every member to review every proposal, certain topics will be delegated to smaller teams. The initial subcommittees cover:

Backing Asset Approval: Steakhouse Financial & Block Analitica & Untangled

Protocol Integrations: Blockworks Advisory & Untangled

These assignments may evolve over the course of the term, but streamlining responsibilities in this manner is expected to benefit the Ethena ecosystem overall.

Additionally, the review time for new proposals is being updated from 1 to 2 weeks and formal acknowledgement will be sent upon receipt within the forum.

Proposals

Derive Ethena Liquidity and USDe Integration

January 17, 2025

Proposal

Integration Goal: Direct a portion of Ethena’s hedging flow to Derive, an on-chain options and perps protocol, aiming to leverage Derive’s growing open interest and strong security record.

Initial Allocation: Target exposure is capped at 10% of Derive’s open interest per asset (BTC, ETH).

Rationale:

Synergies & Transparency: Bringing hedging flows on-chain and utilizing USDe can improve transparency and minimize counterparty risk.
Funding Rates: Derive often has competitive or higher funding rates relative to centralized venues, although with greater volatility due to less liquidity.
Long-Term Alignment: sENA stakers earn Derive Points; Derive supports USDe and sUSDe integration.

Answers

Blockworks Advisory and LlamaRisk reviewed the proposal

Both reviewers see Derive’s low open interest as a limiting factor for immediate integration; however, they remain open to approving Derive as a hedging venue once liquidity and OI further expand, pending additional technical and legal due diligence.

Reserve Fund | UBS Money Market Investment Fund (“uMINT”)

January 24, 2025

This proposal comes in the context of the open request for RWA or other yield bearing asset providers to come forward if they believe their asset should be considered to be integrated in the Ethena reserve fund. The request was first published in July 2024 and since then the Committee of last term has provided due diligence and decided on the final winners. Since then, while new submissions are welcome, they will be gathered to be considered together on a later date. Because of factors like risk diversification it is not a type of proposal that is answered in an isolated fashion, but rather comparatively in a group. Responding on a case-by-case basis might miss the bigger picture, so holding off for a more comparative review seems like the way to go.

This proposal follows the public call for RWA providers and other yield-bearing asset projects to submit their offerings for consideration in the Ethena Reserve Fund. The original request was posted in July 2024, and the previous Risk Committee conducted due diligence on the submissions, ultimately selecting the winners. Although new proposals are still welcome, they will be reviewed collectively at a later time. Because factors like risk diversification benefit from a comparative approach, proposals are not evaluated in isolation. Responding to each case independently can overlook broader portfolio considerations, so waiting to conduct a more holistic review is the preferred approach.

Proposal: Onboarding Aave’s aUSDC and aUSDT as USDe Backing Assets

March 21, 2025

This proposal seeks to onboard Aave’s aUSDC and aUSDT as eligible backing assets for USDe. As both assets offer deep liquidity and competitive return opportunities, the proponent defends it could enhance the resilience and capital efficiency of USDe.

This proposal will be reviewed and answered by Block Analitica, Untangled and Blockworks Advisory. The Ethena team is currently aligning priorities between two proposals: this existing Aave asset onboarding proposal and an upcoming proposal focused on lending USDtb from the backing.

Other topics

Bybit Incident Post-Mortem

Llama Risk conducted a post-mortem of the recent Bybit wallet hack and assessed how Ethena’s protocol weathered the event. Although market concerns briefly drove sUSDe and USDe prices down, Ethena’s operations were ultimately unaffected thanks to three key factors: off-exchange settlements, the use of reputable custodians, and robust over-collateralization.

Off-exchange settlements ensure that Ethena’s hedging collateral is held with third-party custodians (Copper, Ceffu, and Cobo) rather than on centralized exchanges themselves. These bankruptcy-remote structures allow Ethena to trade on exchanges like Bybit without exposing user funds to exchange solvency risks. Even if a custodian experiences technical or operational failures, Ethena retains legal ownership of the assets and can relocate them as needed.

During the Bybit hack, around $30 million was in unrealized PnL tied to Bybit, which Ethena quickly settled to reduce exposure to zero. Meanwhile, the protocol maintains $60 million in reserve fund capital to cover any unexpected operational or negative funding rate losses, further bolstered by a large stablecoin buffer to handle high-volume redemptions. Ultimately, Ethena’s diversified setup, over-collateralization, and rapid reaction to unsettled PnL allowed the protocol to mitigate potential damage and maintain stable operations.

Reserve Fund Sizing

Determining the right size for the Reserve Fund is an ongoing priority for the Risk Committee. A dedicated working group, led by Llama Risk and Blockworks Advisory, is actively exploring different approaches and potential improvements.

Currently, the Reserve Fund stands at $60.8M, which has already proven sufficient—for instance, it held up well during the Bybit incident. Behind the scenes, we’re busy gathering centralized exchange data on historical liquidity, order book depth, and slippage to better model the costs the Reserve Fund might need to cover in extreme scenarios.

If you’d like to dive deeper, you can check out Llama Risk’s initial framework here. At the moment, efforts to expand on this model have brought us to a two-cost approach that brings in dynamic funding rate estimates and refined slippage assumptions, giving us a robust safety net to protect Ethena in severe downturns. For more details, take a look at our working document here.

Additionally, the Reserve Fund Subcommittee is evaluating a potential increase in allocation to USDtb from similar yielding assets currently held in the fund.