Fantom's Andre Cronje Raises Concerns Over Ethena Labs' Synthetic Dollar, USDe
Summary:
Andre Cronje, Fantom founder and key DeFi figure, raised concerns about the potential risks linked to Ethena Labs' synthetic dollar, USDe. His primary concern is the risk management tactics in Ethena's handling of perpetual futures contracts' funding rates. This follows widespread worries with Ethena's USDe stablecoin yielding 27.6% APY upon launch, surpassing the failed Terra UST's 20% yield. In response, Ethena Labs founder Guy Young mentioned that negative funding rates are not a major worry and outlined measures in place to handle such issues.
Andre Cronje, the founder of Fantom and a key figure in decentralized finance (DeFi), has expressed concerns about the potential risks tied to USDe, a synthetic dollar developed by Ethena Labs. Cronje voiced his apprehensions over the risk management techniques used by Ethena Labs, particularly in relation to perpetual futures contracts' funding rates. In a recent online post, Cronje suggested that a positive market and shorting funding rates can lead to a catastrophic event when the tide changes, resulting in liquidations and the creation of an unbacked asset.
There were significant apprehensions when Ethena's USDe stablecoin initiated a 27.6% annual percentage yield (APY) upon its public mainnet launch on February 19, much higher than the 20% yield offered by the now defunct Terra UST on the Anchor protocol, which collapsed in May 2022, wiping out billions in value.
In response to these concerns, Ethena Labs founder Guy Young told Cointelegraph that these doubts are symptomatic of a developing industry recovering from the Terra-Luna debacle. In his view, the possibility of funding rates turning negative is not a major cause for concern, noting that funding rates only dipped below -3% for one week in 2022, an exceptionally challenging year for the crypto industry.
Young also mentioned that Ethena has precautionary measures in place for occasions when funding rates become negative. These include an emergency insurance fund and arbitrage mechanics. He added that if the interest rate dips too low, it's a signal that the supply of USDe is exceeding leverage demands in the system, which would lead users to opt out of the product and contribute to the recovery of the funding rates.
While explaining the difference between USDe and Anchor protocol, Young clarified that the yield on USDe is not fabricated but openly verifiable and derived from staking returns and shorting Ether perpetual futures contracts.
Analyst Jae Sik Choi of Greythorn Asset Management also weighed in on the issue, stating that the falsely elevated yield of Anchor protocol was untenable, unlike the adjustable yield offered by USDe. He drew attention to the disparity between the real yield and the payout offered by Anchor protocol, emphasizing that there's no such risk-free returns gimmickry associated with USDe, making it a safer and transparent option.
Published At
4/3/2024 4:19:56 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.