Ethena looping strategy security and risks
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We use products from Ethena Labs: USDe, sUSDe. At the core is the stablecoin USDe.
What can cause stablecoins to depeg? For example, the bankruptcy of a bank where the stablecoin’s reserves are held (the bankruptcy of Silicon Valley Bank in 2023 caused an 8% depeg of USDC by Circle, which later repegged). USDe does not hold reserves in banks or bonds. 88% of reserves are held in BTC and ETH non-custodially. 7% on Binance, 2% on Bybit, 2% on OKX, 1% on Deribit in the form of short or long positions on the derivatives market. Risk of bankruptcy of these exchanges. Impact on 12% of reserves.
Proof of Reserves: Ethena continuously publishes reserve reports; at the moment reserves stand at 101.23% of deposits.
AAVE is the largest and most popular bank in crypto, fully decentralized.
We hold a position in AAVE: collateral in sUSDe and debt in USDe. What happens if USDe becomes worth more than sUSDe? The entire position gets liquidated.
There is an example proving that this is impossible: On October 10, 2025, a whale exploited a vulnerability on Binance Lending. Lending was pricing USDe using the spot market price. The exploiter first pumped the price of USDe, then deposited it into Binance Lending and used this undercollateralized position to borrow BTC, ETH, SOL, etc. Then they executed a series of large sells, triggering a cascade of $19 billion in liquidations. Yes, the price of USDe on Binance rose noticeably, but could this liquidate our position? No, because AAVE uses an oracle that cannot be influenced by large buys and sells on exchanges. For example, on October 10 the oracle price did not rise. On CoinMarketCap you can see that the price of USDe occasionally deviates slightly from $1.00, due to market participant pressure on exchanges, but this does not affect the Chainlink oracle.
To open a position we use looped leverage of x11, which means that if the price of USDe drops by 9% our position will be liquidated. Has this ever happened? No.
Smart contract risk: Altitude Hedge Fund has no smart contracts, therefore we cannot be hacked; all transactions are conducted through Safe Multisig. Ethena USDe is a centralized immutable smart contract (the Ethena Labs team cannot upgrade or replace the smart contract and change the logic of the stablecoin). Ethena sUSDe is a fork of the Silo Tokenized Vault Standard, a time-tested vault standard. Ethena’s contracts are very simple, without complex mechanics, and have passed audits dozens of times.
Centralization risk: Ethena has full control over the minting and burning of the stablecoin, similar to USDT, USDC, FDUSD, PYUSD, GUSD, USDP, EURC, so this risk also needs to be taken into account. Ethena works with US regulators SEC and CFTC and, for example, another stablecoin USDtb complies with US regulation.