Summary
LlamaRisk supports adding USDT to sUSDe Stablecoins Liquid E-Mode on Core instance in light of the extensive interest in sUSDe yield leveraging observed on both Ethereum Mainnet markets after enabling the new sUSDe Stablecoins liquid E-Mode. This will help to diversify sUSDe borrow composition and, therefore, result in a more robust risk profile of this E-Mode.
sUSDe/USDe Stability
The most up-to-date risk and stability assessment of Ethena’s protocol & sUSDe was covered in an initial sUSDe Liquid E-Mode ARFC. In the two weeks since that evaluation, a bullish market has driven a 0.9 billion USDe increase in supply. Additionally, the attractive sUSDe yield has resulted in an aggressive 1 billion increase in supply. This growth is expected to continue as long as perpetual funding rates remain higher than average in broader markets.
Source: LlamaRisk Ethena’s Risk Dashboard, 26th November, 2024
The protocol’s solvency and reserve fund capitalization remains sufficient. The liquidity of sUSDe has increased by 15%, only to a total LP TVL of $44M. Nonetheless, USDe Liquidity has increased more significantly as the supply of USDe grew, reaching $160M of LP TVL, mainly concentrated on Curve DEX.
Source: LlamaRisk Ethena’s Risk Dashboard, 26th November, 2024
Price Deviations
In our previous note, we explained that the sUSDe price is determined by combining the internal sUSDe/USDe exchange rate and Chainlink’s USDe/USD price feed on Aave’s Core instance. The CAPO mechanism further protects the internal exchange rate. As a result, Oracle’s price is predominantly influenced by the USDe/USD price in secondary markets. Assessing the maximum negative spread between USDe and USDT market prices is crucial to evaluate the liquidation risk when sUSDe is used as collateral for USDT borrows.
Historical data shows that the price deviation between USDe and USDT has been minimal, with a maximum negative spread of just 0.3% (30 bps). This indicates that USDT is well-suited for onboarding into the current liquid E-Mode.
Source: LlamaRisk, 26th November, 2024
Parameters
E-Mode’s risk parameters would remain unchanged with the inclusion of USDT. Therefore, the updated setup of sUSDe Stablecoins Liquid e-Mode would be the following:
| Parameter | sUSDe | USDS | USDC | USDT |
|---|---|---|---|---|
| Collateral | Yes | No | No | No |
| Borrowable | No | Yes | Yes | Yes |
| Max LTV | 90% | - | - | - |
| Liquidation Threshold | 92% | - | - | - |
| Liquidation Bonus | 3.0% | - | - | - |
Disclaimer
In the interest of transparency, LlamaRisk is a compensated member of Ethena’s Risk Committee and provides ongoing risk advisory services to their protocol.
This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded partly by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information should not be construed as legal, financial, tax, or professional advice.