[ARFC] Addition of USDe to Ethena Principal Token Stablecoin E-Modes

Governance
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Summary

Chaos Labs provides an addition to the PT Tokens/Stablecoin E-Modes in order to improve the user experience with regard to debt asset migration.

Motivation

The creation of a new E-Mode which allows users to leverage USDe-linked PT tokens against USDe itself has already proven a success, as USDe has generated a significant revenue relative to its size.

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Also beneficial, and as discussed in our previous post, leveraging these PT tokens against their underlying assets, rather than other stablecoins, reduces the risks inherent in these strategies, allowing for more permissive collateral parameters and creating less risk for the protocol.

However, the current configuration leads to frictions for users who may wish to transfer their PT-token-backed debt from USDe to USDT or vice versa; allowing easier debt swapping benefits both the protocol, by creating more stable rates, and users, by granting access to the most competitive rates available. Currently, a user would be required to unwind their position on Aave, potentially including swapping on Pendle, introducing transaction and execution costs. As suggested by @myriad, it is preferable to instead add USDe to each PT-Tokens’ respective Stablecoin E-Mode.

Please note that if a user is borrowing to the maximum LTV/LT in the USDe E-Mode, they will be required to reduce their leverage before performing the E-Mode migration. For example, a user borrowing at 92.5% LTV in the USDe E-Mode will be required to reduce their LTV to 92.1% or lower to comply with the parameters of the PT-USDe-July Stablecoin E-Mode, presented below.

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As indicated in the subsequent chart, the advantage of migrating from USDe to Stablecoin debt is expected to persist only briefly, until the USDe E-Mode loan-to-value and liquidation-threshold parameters are raised to reflect the lower risk of a highly correlated collateral–debt pair. Hence, following this initial period, we expect the majority of the migration flow to be performed in the opposite direction.

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Additionally, the APY projections shown assume utilisation reaches the kink. Demand for these leveraged strategies is highly rate-sensitive, and as such, their profitability will be reflected in utilisation metrics. To date, USDe-denominated E-Modes have consistently delivered higher profitability than the general Stablecoin E-Mode.

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Specification

Add USDe as a borrow-only asset in the following E-Modes:

  • PT-eUSDe Stablecoins August 2025
  • PT-USDe Stablecoins July 2025

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0

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Summary

LlamaRisk supports the latest proposal from Chaos Labs further to refine the E-mode configuration for Pendle Principal Tokens. This proposal builds upon the previously published ARFC addendum, which suggested PT underlying assets to be added as borrow-only to the existing “Stablecoins” E-modes.

User-Experience Enhancement

This purely technical change is designed to improve capital efficiency and reduce user friction. By allowing USDe as a borrowable asset within the general Stablecoin E-modes, users can seamlessly switch their debt between USDe and other stablecoins (like USDT/USDC) without completely unwinding and re-establishing their leveraged positions. This enhances the user experience, eliminates the need to route debt swaps through the secondary market liquidity, and could lead to more stable borrowing rates across the protocol.

Continuity with Previous Proposal

This concept is an iteration of the improvements discussed in the original addendum, [ARFC ADDENDUM] Modify E-Modes for PT Token Collateral. While the initial proposal focused on enabling rollovers, this addition addresses the user journey for debt management during the lifetime of the position. We view this as a minimal incremental risk, a high-impact enhancement that aligns with our goal of optimizing risk parameters while improving protocol usability.

Notably, the previous addendum has not been implemented onchain, with no PT Stablecoins E-mode currently containing the underlying asset (USDe or sUSDe).

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Source: Aave Dashboard, June 17, 2025

Disclaimer

This review was independently prepared by LlamaRisk, a community-led decentralized organization funded in part by the Aave DAO. LlamaRisk LlamaRisk serves as Ethena’s Risk Committee member and an independent attestor of Ethena’s PoR. LlamaRisk did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

1 Like
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USDe has gained a lot of traction over the last few months and as such merits being included in the stablecoin e-mode for users to switch their debt between multiple stablecoins. In terms of risk, we tend to be a bit wary, but if the risk providers attest that there is only minimal incremental risk while the reward is significant, we think it is a worthy addition to make.

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The current proposal has been escalated to ARFC Snapshot. Voting will commence in ~12 hours, within the following timeframe:

Start
June 19, 2025 1:03 AM UTC

END
June 22, 2025 1:03 AM UTC

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After Snapshot monitoring, the current ARFC Snapshot ended recently, reaching both Quorum and YAE as the winning option with 597.2k votes.

Therefore, ARFC has PASSED.

As a next step, an AIP will be published for final confirmation and enforcement of the proposal

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