Renowned decentralized finance (DeFi) builder Andre Cronje has expressed concerns about the incentives behind Ethena Labs' USDe stablecoin in a post on X.
Renowned decentralized finance (DeFi) builder Andre Cronje has expressed concerns about the incentives behind Ethena Labs' USDe stablecoin in a post on X. Cronje, known for his thought leadership in the DeFi space, indirectly mentioned the protocol and its synthetic dollar, highlighting his worries about Ethena Labs' risk management practices, specifically addressing funding rates in perpetual futures contracts.
Cronje stated, "While things are going great now... eventually that turns, funding becomes negative, margin/collateral gets liquidated, and you have an unbacked asset." Although Cronje did not explicitly name Ethena Labs or USDe, his concerns were evident regarding the stability and backing of the asset.
Ethena Labs' USDe stablecoin yield initially raised concerns when it launched on the public mainnet on February 19. At the time, it offered an annual percentage yield (APY) of 27.6%, significantly higher than the 20% yield of the failed TerraUSD (UST) on the Anchor protocol.
Guy Young, the founder of Ethena Labs, responded to the concerns, stating that the skepticism surrounding the project is a sign of a maturing industry. Young emphasized that funding rates turning negative is not a major worry, as they had only dipped below -3% for a week in 2022, which was a particularly challenging year for the crypto market. To address potential risks associated with negative funding rates, Ethena Labs incorporates other measures such as an emergency insurance fund and arbitrage mechanics.
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