LlamaRisk Reveals 51.2% of Ethena’s USDe Backing in Lending Markets

The risk assessor known as LlamaRisk reported on October 12 that 51.2% of the backing for Ethena’s USDe is currently allocated toward institutional lending and DeFi. This synthetic dollar, which maintains a target peg of $1, relies upon these specific assets to form its reserve structure. At the time the assessment was conducted, the total backing stood at $4.76 billion, which matched the 4.76 billion USDe that were outstanding.

Lending Allocation Breakdown

That 51.2% lending figure is further broken down into 36.9% held in DeFi lending and 14.3% held in institutional lending. The portions of the backing that remain are allocated to liquid stablecoins at 24.9%, crypto basis at 17.6%, and real-world assets at 6.0%. LlamaRisk pointed out that this specific allocation figure does not serve as a measure of the cash available for immediate withdrawal, nor does it measure actual borrower drawdowns. A lending position may hold excess collateral even while the stablecoins that were supplied remain borrowed. Consequently, the recovery of those assets is dependent upon the specific terms of the loan agreement or the liquidity available in the pool.

The DeFi lending policy of Ethena describes markets that have been reviewed for conservative loan-to-value parameters and excess borrower collateral. These particular safeguards are subject to the review of the Risk Committee and general governance. Asset availability is determined by the specific withdrawal mechanics of the protocols being used. Under the rules of Aave, a supplier is only able to withdraw amounts that have not been borrowed from the pool. Similarly, the market design of Morpho makes the existence of sufficient liquidity a necessary condition for withdrawal. This implies that immediate liquidity for redemption is constrained by the utilization rates of these lending markets, even in cases where the collateral itself is sound.

Institutional lending consists of loans for stable assets that are backed by collateral with a value exceeding the borrowed amount. This collateral includes Ethereum and liquid Bitcoin. To protect the claim of the protocol, triparty arrangements and qualified custody are utilized, meaning an independent agent administers and holds the collateral. The review framework from LlamaRisk in April examined enforceable security interests, custody segregation, and collateral ratios. In a review conducted in March regarding agreements with Anchorage and Maple, LlamaRisk found that there were no material contractual deficiencies, although the individual commercial terms are kept confidential.

Redemption and Exit Mechanisms

Holding USDe does not provide an automatic grant of access to the primary redemption facility of Ethena. This service is reserved exclusively for eligible Mint Users who have undergone whitelisting, as well as anti-money-laundering and know-your-customer checks and other onboarding procedures. Holders who are not eligible must rely on secondary markets if they wish to exit. The terms that have been published describe a conditional redemption into supported digital assets, which represents a pro-rata portion of the reserves. This redemption process is capped at $1 in notional value for every USDe.

The assessment of the Ethereum contract on October 12 by LlamaRisk identified that USDtb, USDm, USDT, USDG, USDC, and PYUSD are enabled as stablecoins for redemption. DAI is also enabled, though it is subject to smaller limits. The ceiling for aggregate redemption is 20 million USDe per block, while the ceiling for minting is 200 million per block. For DAI, the limit is 2 million in each direction. These figures represent contract ceilings rather than measures of available cash. The issuer maintains the ability to suspend redemption and minting without having to wait for the 24-hour period of the controller.

For those holding sUSDe, the process for exiting involves an additional stage. sUSDe is an ERC-4626 vault share that represents a proportional claim on USDe, and rewards increase the amount of USDe represented by each share. A separate unstaking process is required to withdraw USDe from sUSDe. The staking guidance from Ethena describes a dynamic cooldown period that is set by governance and ranges from one to seven days. Before withdrawal, pending unstaked USDe is placed into USDeSilo. While completing this process delivers USDe, the act of redeeming or selling that USDe remains a further step with its own eligibility conditions and liquidity.

Reserve Fund and Liquidity Context

The reserve fund of Ethena is intended to absorb backing shortfalls and negative protocol revenue. In a September assessment, LlamaRisk valued this fund at approximately $62.1 million. However, the policy for the reserve fund directs ongoing revenue from the protocol toward promotional distributions and incentives rather than toward the reserve fund itself. Currently, the allocation of new revenue to the fund is 0%. This means the balance of the fund serves as a historical buffer instead of acting as a growing source of assets for immediate settlement.

Position mapping in September identified exposures in the DeFi sector to Kamino, Jupiter Lend, Morpho, and Aave. Institutional positions were identified with Anchorage, CBAM, Kraken, FalconX, and Maple. An analysis from Blockworks Advisory in March distinguished between lending positions that are withdrawable and those that are constrained by utilization. It further noted that cycling USDtb, which is already held as USDe backing, through redemption and minting creates no net liquidity. For holders, the observable test is the amount supplied to each market alongside the available unborrowed liquidity. The exit framework is completed by active sUSDe cooldowns and redemption eligibility.