Ethena (USDe) - STEP Application



Primary contact Name
Guy Young

CEO and Founder

Key Information

Expected Yield
YTD range has been 3-113% APY

Expected Maturity
No maturity

Underlying asset
The yield generated by the protocol originates from two sources:

  1. Staked asset consensus and execution layer rewards
  2. Funding and basis spread earned from the delta hedging derivatives positions

More here: Yield Explanation | Ethena Labs

Minimum/Maximum transaction size
$1m+ minimum for direct minting facility
No min/max on secondary

Basics and background

  1. How will this investment improve Arbitrum’s RWA ecosystem?
    Arbitrum will deepen its relationship with Ethena, a $2.3B TVL product (USDe) already present on Arbitrum.

While USDe is already integrated into Arbitrum DEXes like Camelot and Balancer and yield protocols like Pendle, Ethena is committed to becoming more deeply integrated into the Arbitrum ecosystem. For eg, subject to demand, a deeper partnership will pave way for native USDe minting on Arbitrum (so far only on ETH mainnet).

Additionally, while the Ethena protocol hedges on CEXes like Binance, OKX, Bybit and Bitget currently (2.3B in notional exposure), there are plans to integrate decentralised perp venues. Given Arbitrum is home to some of the most prominent perp DEXes like GMX and Vertex, it would be a natural venue for hedging.

Even a relatively small portion of Ethena’s trading facilitated on Arbitrum would account for a significant share of perp OI and volume, leading to a mutually beneficial arrangement.

2. Identify key management personnel and individual experience. Also include third parties utilized for managing assets and their qualifications.

Guy Young CEO - ex Cerberus (60B AUM TradFi fund)

Seraphim - Head of Growth (ex-Lido)

Custodians: Copper, Ceffu, Cobo via off-exchange custody solutions (each hold billions of dollars worth of collateral with great track record)

4. Has your entity or its officers/key contributors been subject to an enforcement action, criminal action, or defaulted on legal or financial obligations? Please describe the circumstances if so.

5. Describe any conflicts of interest for your entity and key personnel.

6. Insurance coverages, guarantees, and backstops Name of insurer or guarantor Per incident coverage Aggregate coverage
No insurance.

7. Historical tracking error in your proposed product, or similar to that being proposed Product 2024 YTD 2023 2022 2021

8. Brief reason for above tracking error

9. Please describe any experience your firm has in working with decentralized organizational structures
Seraphim (Head of Growth) - worked at Lido DAO. Created high level proposals like for eg reward share agreement b/w Lido and Mantle DAO leading to >$40m TVL allocation.

Conor (head of research) - in the process of building out Ethena DAO structure.

10. What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
$2.3B in TVL held in custodian accounts (Copper, Ceffu and Cobo): Custodian Attestations of Assets Backing USDe — Ethena Labs

11. How many of these assets held are present on Arbitrum One, if any?
None of the backing for the protocol is held on Arbitrum One.

Plan design

1. Please describe your proposed product, including a description of the underlying assets and, if more than one asset, the proposed allocation among assets and general investment guidelines. Where appropriate, include targeted maturity mix and credit quality. Attach supplementary documents as appropriate.

Ehena’s USDe is based on a delta neutral position using ETH, LSTs and BTC hedged on CEXes while spot backing assets are kept in Off Exchange Custody solutions.

The breakdown of assets and hedging venues can be seen above as of 29 April 2024. Ethena

Do investors have any shareholder, investor, creditor or similar rights?

How are Arbitrum’s assets protected vis-a-vis the bankruptcy of the brokerage or applicable financial institution (e.g., bank deposit insurance, securities insurance, etc.)?

Assets are held in bankruptcy remote structures like Copper Clearloop or Ceffu off-exchange custody. As a result, the assets are bankruptcy remote from both the exchanges to which the assets are delegated for hedging activities as well as the providers of custody solutions.

More can be found here: Off-Exchange Settlement in detail | Ethena Labs

Does the Issuer issue more than one asset? If so, what is the priority relationship between different asset classes?

  1. Provide a detailed cash flow diagram that shows the flow of funds from ARB/Fiat conversion, investment in underlying asset, payment of expenses, sale of underlying asset, and repayment (Fiat/ARB conversion), including the counterparties and legal jurisdictions involved.

The workflow is simple: ARB foundation gets whitelisted via KYB/KYB. Arb foundation provides USDT, mints USDe. Then, ARB foundation stakes USDe into sUSDe to receive organic yield.

In the background, USDT lands in institutional custody (Copper, Ceffu or Cobo), and gets swapped into ETH/LSTs/BTC. Meanwhile, the CEX hedge is being put on depending on internal risk metrics, slippage and other execution costs.

Should users redeem, the perps are bought back, collateral sold for USDT which is made available to redeemers.

2. Describe anticipated tax consequences (if any) in transacting on the underlying and/or receipt of yield.

The tax consequences to minters/redeemers of USDe and holders of sUSDe is not something we can opine on and is subject to each holder’s personal situation.

3. Describe the process and expected timeline for liquidation of assets, if given instructions to do so by Arbitrum governance.

  1. USDe can be sold on secondary markets (Curve, Uniswap, Bybit, Bitget)
  2. USDe can be redeemed directly via an RFQ quote on the front end or via API call. There is 2m USDe per block restriction, ie 10m can be redeemed within about 5 blocks.

5. Describe the liquidity and stability of the proposed underlying assets, including anticipated settlement times from the sale of the underlying to the repayment of ARB.

Arbitrum (and other whitelisted users) can redeem 2m USDe every block.

More info available here: How to Redeem USDe | Ethena Labs

6. If relying on the blockchain for any of the transactional flows, please describe any blockchain derived risks and mitigations.

The onchain part is involved with minting, redemption, staking and unstaking. The collateral itself is held with custodians.

7. Does the product rely on any derivative product (swaps,OTC agreements?

The product hedged ETH, LSTs and BTC on CEXes using perps.

8. List all the third party counterparties linked to your assets including and not restricted to prime broker if any, custodian, reporting agent, banks for derivatives or loans and provide primary contact details for the third party counterparties


  1. Copper
  2. Ceffu
  3. Cobo


  1. Binance
  2. Bybit
  3. OKX
  4. Bitget

9. Can you explain how is risk management (inv and operational) being done? Can you provide a copy of your risk management policy?

We have done extensive reporting on risk involved including:

  1. Funding Risk
  2. Liquidation Risk
  3. Custodial Risk
  4. Exchange Failure Risk
  5. Collateral Risk

Performance reporting

1. What are your proposed performance benchmarks? If this is substantially different from the underlying assets, please explain why.

Attestations from custodians, segregated accounts within custodians

2. Describe the content, format, preparation process, and cadence of performance reports. This should include proof of reserves, if appropriate. Please include a sample report.

Recent attestations from our custodians: Custodian Attestations of Assets Backing USDe — Ethena Labs

3. Who provides the performance reports in respect of the underlying assets?

The custodians holding the funds

4. Describe any formal audit process and timing of such audits.


3. Describe frequency of fee payment and its position vis-a-vis payment priority compared with other expenses (i.e., cash waterfall)

Interest is paid out weekly on Thursdays

Smart Contract/Architecture

1. How many audits have you had and name of auditors? Please provide a copy of reports.

Immunefi, spearbit, quantstamp, Pashov, Zellic: Audits | Ethena Labs

2. Is the project permissioned? If so how are you managing user identities? Any blacklisting/whitelisting features?

USDe is immutable, but sUSDe has a blacklist function enabling Ethena to prevent sanctioned and other high-risk addresses from receiving interest and/or confiscating sUSDe from such users.

To mint and redeem, users need to be fully KYB’d and whitelisted (similar to USDC and USDT)

3. Is the product present on several chains? Are there any cross chain interactions?

USDe is available on Arbitrum, Mantle, Optimism etc:

4. Are the RWA tokens being used in any other protocols? Please describe the various components of the ecosystem

USDe is collateral on Morpho and is being used to borrow DAI minted by Maker.

sUSDe is in the process of becoming collateral on Aave

USDe is widely used in pendle to trade fixed/variable legs

Check various integrations here:

5. How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?

Ethena labs hold multisig keys to mint/redeem and gatekeeping logic for security purposes. Check: Matrix of Multisig and Timelocks | Ethena Labs

6. Is there any custom logic required for your RWA token? If so please give any details.