Aave risk advisors warn: USDe stablecoin may threaten protocol robustness

[Block Rhythm] On August 5, it was reported that Aave's risk advisor Chaos Labs indicated that as the deposit amount of the USD-pegged token USDe in the protocol continues to increase, Ethena's USDe stablecoin may threaten Aave's robustness and trigger liquidity tightening. In a post released by Chaos Labs on Saturday in the Aave governance forum, they discussed the potential risks of Aave's increasing exposure to Ethena. Chaos Labs pointed out that when USDe holders deposit a large amount of the token into Aave, while its issuer Ethena simultaneously lends out the stablecoin that supports this asset, it creates a significant risk. Ethena must avoid excessively deploying its stablecoin reserves into Aave. Self-restraining such exposure helps ensure the reliability of redemptions and the stability of the market. Ethena has not immediately responded to requests for comments.

Ethena has deposited $580 million of USDe-backed assets into Aave, a strategy known as re-collateralization. Additionally, Aave's current $4.7 billion exposure comes from USDe-backed assets, including PT and sUSDe, which account for over 55% of the total USDe supply. Chaos Labs stated, "The dual role of supported assets as both Aave's redemption capital and liquidity creates a vulnerability that could exacerbate pressures on both protocols during deleveraging events." USDe has growth and contraction cycles due to its support mechanism, and during bearish market conditions, if supported assets are borrowed, redemption by USDe holders could pose problems. Its cyclical strategy further amplifies risks, potentially leading to liquidity tightening in Aave and rising borrowing rates, triggering a chain reaction. However, there are currently no immediate reasons for concern, as the unwinding of positions during contraction periods could offset the surge in utilization. But the situation may change with the growth of USDe or increased re-collateralization. Chaos Labs is developing new risk prediction tools to adjust interest rates and ensure orderly redemptions during market stress periods.