In a turn of events that could only be described as a jolly good show, Ethena Labs has gallantly assured its users that their yield-bearing stablecoin, Ethena USDe (USDe), remains as solvent as a well-stuffed wallet after a rather unfortunate exploit drained more than a billion dollars from the crypto exchange Bybit on the 21st of February. 🎩💰
According to the decentralized finance (DeFi) protocol, their synthetic dollar token, USDe, has a modest exposure of roughly $30 million to financial derivatives on Bybit. However, in a post that could only be described as a masterclass in optimism, the protocol claimed that its reserve fund is more than sufficient to offset any losses from the exploit. Bybit, it seems, was hacked for a staggering $1.4 billion in Lido Staked Ether (sTETH), Mantle Staked Ether (mETH), and a veritable cornucopia of other cryptocurrencies. 🏦💸
Hedging against the capricious nature of the crypto market using offchain derivatives plays a central role in Ethena Labs’ strategy for generating yield on USDe. One might say it’s akin to wearing a raincoat in a downpour—wise, if not a tad paranoid.
“Currently, there is less than $30 million of aggregate unrealized PNL relating to Bybit hedge positions, which is less than half of the reserve fund,” Ethena chirped, adding with a wink: “USDe remains more than fully collateralized at this time.”
Ethena’s reserve fund “acts as an additional margin of safety behind USDe.” It held approximately $46 million as of the fourth quarter of 2024, according to Ethena’s rather reassuring documentation.
The DeFi developer further assured users that none of USDe’s cryptocurrency backing is held on Bybit itself. Instead, the digital assets are safely tucked away with an off-exchange custodian, Copper. One can only imagine the sigh of relief that must have echoed through the halls of Ethena Labs upon this revelation.
“As a reminder: all spot assets backing USDe are held in off-exchange custody solutions, including Bybit via Copper Clearloop for this precise reason,” Ethena added, as if to say, “Fear not, dear investors!”
Centralization Risks
Ethena allows users to mint USDe against tokens such as Bitcoin (BTC), Ether (ETH), liquid staking tokens, and other stablecoins. It then hedges against the portfolio’s inherent volatility using offchain financial derivatives—because who doesn’t love a good hedge?
Launched in February, USDe has managed to bootstrap billions of dollars from stablecoin holders chasing after double-digit returns from Ethena’s yield strategy. It’s like a game of musical chairs, but with more zeros involved.
“Ethena harnesses yield from staked assets (think Lido’s stETH), plus the funding and basis spread from perpetuals and futures markets, passing these gains on to sUSDe holders,” crypto researcher Messari noted in a December research note, likely while sipping a cup of tea.
However, Ethena’s CeDeFi—centralized DeFi—trading strategy poses risks, including the potential for failures by offchain exchanges, custodians, and settlement providers, as Messari pointed out, probably with a raised eyebrow.
Following the high-profile Bybit hack, the exchange’s CEO, Ben Zhou, reassured customers that withdrawals are still open but may take several hours to process due to high congestion. One can only hope they have a good book to read while waiting! 📚
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2025-02-21 23:01