Fantom creator, Andre Cronje, has expressed concerns about the potential risks associated with Ethena Labs’ USDe, suggesting that its incentives could lead to a situation similar to the Terra collapse. Cronje, a prominent figure in decentralized finance (DeFi), shared his worries about the risk management strategies employed by Ethena Labs, specifically highlighting the issue with funding rates in perpetual futures contracts. In a post on April 3, Cronje alluded to the instability of Ethena’s USDe stablecoin yield, which launched on the public mainnet with a significantly high annual percentage yield (APY) of 27.6%. This yield surpassed the failed TerraUSD (UST) on the Anchor protocol, which famously collapsed in May 2022, resulting in the loss of billions of dollars in value within a matter of days.
Despite the concerns raised, Guy Young, the founder of Ethena Labs, dismissed them as indicative of a maturing industry that naturally harbors a healthy level of skepticism following the Terra collapse. When questioned about the potential risks associated with negative funding rates, Young downplayed the issue, stating that funding rates had only turned negative to below -3% for a week in 2022, which he considered to be one of the worst years for the crypto market. Young also emphasized that Ethena Labs has implemented various measures to mitigate the impact of negative funding rates, including an emergency insurance fund and arbitrage mechanics.
In contrast to the Anchor protocol’s artificially inflated yield, Young highlighted that USDe’s yield is publicly verifiable and is generated through staking returns and shorting Ether perpetual futures contracts. According to Jae Sik Choi, an analyst at Greythorn Asset Management, the Anchor protocol’s unsustainable yield was fabricated, whereas USDe offers a dynamic yield that is more sustainable.
In related news, Ethena has become the highest earning decentralized application (DApp) in the crypto industry, further solidifying its position as a leading player in the field.
Source: Cointelegraph