Summary
LlamaRisk supports the removal of USDe’s ceiling (currently $86.4M). This change has been motivated by higher user demand for USDe as user preference shifts from sUSDe (declining yield) to USDe (higher points multiplier). After the Bybit incident, it was observed that USDe maintained a safe usage profile and active redemptions. The main risk associated with USDe has always been its reliance on CEXs for most operations, and to tackle this, we have launched our Ethena Proof of Reserves. These include independent proofs of Ethena’s USDe backing assets. The debt ceiling was initially precautionary, but the data points like consistent peg performance, observed market liquidity depth, and efficient redemption processing suggest it is no longer needed. The E-mode parameters reflect USDe’s perceived lower risk.
Market Risk
Removing the $86.4M debt ceiling allows the total value of stablecoins (USDC, USDT, USDS) borrowed against USDe collateral to grow without a protocol-defined limit. This directly facilitates Aave in capturing a larger share of the USDe market and associated fees.
Source: USDe Historical Supply, LlamaRisk, April 25, 2025
Over the past few months, the circulating supply of USDe has been on a steady decline after peaking above $6B in February. The total on-chain supply is approximately $4.75 billion, with an over-collateralization ratio of 101.28%. Ethena’s reserve fund, comprising a mix of stablecoins and real-world assets (RWA) tokens, is currently valued at $60.94M.
Liquidity
Source: USDe/USDC Swap Liquidity, DeFiLlama, April 25, 2025
Users can swap USDe worth up to $55M for USDC within a slippage of 2%. The onchain liquidity is mainly contributed by the $68.5M Curve USDe/FRAX liquidity pool, followed by Curve USDe/USDC ($8.77M TVL) and Uniswap USDe/USDT ($6.2M TVL) pools.
Source: Odos Liquidity Router, April 25, 2025
sUSDe pools also indirectly contribute to this liquidity as aggregators can convert USDe to sUSDe instantly for better swap rates.
Source: USDe CEX Liquidity, CoinMarketCap, April 25, 2025
Ethena has significantly improved the CEX adoption of USDe, which has created an additional secondary market liquidity buffer for Ethena, helping to swap USDe to other stablecoins more efficiently. Approximately 17M USDe can currently be sold in CEXs under the -2% slippage threshold.
Source: USDe withdrawals from sUSDe, LlamaRisk, April 25, 2025
In the coming week, approximately $27M worth of USDe will be unlocked following the 7-day withdrawal period from the sUSDe contract, which currently holds 44.1% of USDe’s total on-chain supply. These unlocks may increase the selling pressure in the secondary markets on Ethereum Mainnet. The unlocked amount represents about 1.3% of the total USDe staked in the sUSDe contract. As part of the ongoing points campaign, users are being incentivized with a 20% bonus on USDe locked via wallets from Binance, Bybit, OKX, Bitget, Pintu, or Gate. However, the long-term effectiveness of this incentive remains to be seen.
E-mode
The proposal to remove the USDe debt ceiling while retaining Isolation Mode (permitting only USDC, USDT, and USDS as debt assets) and introducing a dedicated E-Mode configuration (90% LTV, 93% LT, 2% LB) for these assets presents a mixed risk profile. While Isolation Mode contains direct contagion risk to other assets within Aave V3 Ethereum, removing the debt ceiling allows for potentially unlimited scaling of exposure within the USDe E-mode silo. Notably, a prior incident involving the sUSDe-USDS E-mode pairing saw excessive use of USDS from the D3M pool in looping strategies, which led to significant volatility in supply and borrow rates for borrowers using ETH-correlated assets as collateral. While we support the inclusion of USDS as a borrowable asset within the USDe E-Mode, we advise careful monitoring to mitigate the risk of similar dynamics re-emerging.
Source: USDe/USD Exchange Rate, Coingecko, April 25, 2025
Under the proposed E-Mode parameters, the maximum achievable leverage for USDe on the Ethereum Core market would be 10x. A narrow 3% buffer between the LTV and the LT is the critical safeguard against depeg risk. Over the past few months, USDe has seen a single price deviation of 30 basis points, which could have triggered liquidations for users employing maximum leverage. However, this risk remains minimal, as most USDe suppliers maintain strong health scores, as shown below.
Source: Open USDe Positions on Aave V3 Ethereum Core, ChaosLabs, April 25, 2025
Disclaimer
This review was independently prepared by LlamaRisk, a community-led decentralized organization funded in part 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 provided should not be construed as legal, financial, tax, or professional advice.