Ethena 2 and ACI Propose sUSDe Integration to Aave V3 on Ethereum

Kelvin Munene Murithi
March 4, 2024
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Highlights

  • sUSDe aims to revolutionize DeFi with delta-hedging, ensuring stability in volatile markets.
  • Ethena 2 & ACI's proposal could boost Aave V3 liquidity with over $100M USDe adoption.
  • Innovative sUSDe integration prioritizes decentralization, bypassing traditional banking in DeFi.

Ethena 2, alongside the Aave Chan Initiative (ACI), has proposed the addition of sUSDe, a synthetic dollar derivative, to Aave V3 on Ethereum. This move seeks to leverage Ethena 2’s innovative financial mechanisms to enrich the Aave ecosystem, promising enhanced utility and potential for yield generation through DeFi strategies.

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Incorporating sUSDe to Bolster DeFi Liquidity and Stability

The Ethena 2 proposed by the proposition is not an addition of one more asset to the Aave platform; rather it is a strategic integration that is aimed at strengthening the liquidity and stability of the DeFi ecosystem. 

The synthetic dollar of Ethena 2, USDe, has been designed as a crypto-native stable value exchange solution, supported by delta-hedging strategies that help maintain its peg to the dollar despite market volatility. This is realised through holding a delta-neutral position which essentially hedges the value of Ethereum collateral by minimizing market risk.

USDe staked version sUSDe as introduced to Aave V3 expands the protocol’s functionality in providing a yield-generating asset underpinned by a strong economic model. The potential of sUSDe as collateral triggers imaginative borrowing and lending approaches similar to those demonstrated by other stablecoins but with an additional advantage of direct yield generation from the protocol.

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Strategic Synergies and Market Adoption

The proposal highlights the large market acceptance of USDe, with liquidity of over $100 million on platforms like Curve. Such extensive use makes USDe a good candidate for integration into Aave V3 due to its already established reach and usage within the DeFi sphere. Furthermore, the fusion of Ethena and Aave via the GHOTHENA liquidity pool is an example of a successful teamwork in the context of the collaboration.

In addition, the proposal points out the lack of dependence on traditional banking systems for USDe, pointing towards its complete collateralization by crypto-native mechanisms. This feature adheres to the principles of decentralization and transparency of DeFi with a trustless means of exchange and saving for the users.

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Addressing Risks and Moving Forward

The proposal provides a lot of benefits to the Aave ecosystem, but it also highlights the risks of introducing a new asset class that include smart contract vulnerabilities, liquidity constraints, and market risks. Ethena 2 and ACI have proposed a conservative stance towards scaling sUSDe integration, advocating for moderate Loan-to-Value (LTV) ratios and borrow caps as starting parameters.

The proposal’s progression hinges on community consensus, with plans for escalating the discussion through Aave’s governance stages. Should the community support the initiative, the proposal will advance to Snapshot voting, followed by a standard Aave Request for Comment (ARFC) process for detailed community feedback, and ultimately, an Aave Improvement Proposal (AIP) vote for final enactment.

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Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
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Why Trust CoinGape

CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more…to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.

About Author
About Author
Kelvin Munene is a crypto and finance journalist with over 5 years of experience, offering in-depth market analysis and expert commentary . With a Bachelor's degree in Journalism and Actuarial Science from Mount Kenya University, Kelvin is known for his meticulous research and strong writing skills, particularly in cryptocurrency, blockchain, and financial markets. His work has been featured across top industry publications such as Coingape, Cryptobasic, MetaNews, Cryptotimes, Coinedition, TheCoinrepublic, Cryptotale, and Analytics Insight among others, where he consistently provides timely updates and insightful content. Kelvin’s focus lies in uncovering emerging trends in the crypto space, delivering factual and data-driven analyses that help readers make informed decisions. His expertise extends across market cycles, technological innovations, and regulatory shifts that shape the crypto landscape. Beyond his professional achievements, Kelvin has a passion for chess, traveling, and exploring new adventures.
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.