Fantom creator Andre Cronje has issued a warning about the potential for a cryptocurrency market meltdown due to risky incentives. Although he did not mention the specific project, Cronje expressed concerns about funding rates in perpetual futures contracts, indirectly referencing Ethena Labs’ synthetic dollar, USDe. He compared the reliance on positive funding rates to a meme and cautioned against the assumption that closing positions when the market turns negative is a viable risk management strategy. Cronje also mentioned the “law of large numbers” as a potential countermeasure but highlighted the vulnerabilities in risk management practices. His comments raised questions about the sustainability of high yields offered by Ethena’s USDe, as excessive optimism in positive market conditions could lead to unbacked assets and liquidations when the sentiment shifts negatively.
Ethena Labs’ USDe is a synthetic dollar built on a decentralized protocol based on Ethereum. The stablecoin utilizes crypto collateral, including staked Ethereum, and hedges price exposure in derivative markets on both centralized and decentralized exchanges. In an interview with cryptonews.com, Conor Ryder, Head of Research at Ethena, discussed stablecoins and synthetic dollars. He addressed the stablecoin trilemma, which involves achieving stability, decentralization, and scalability simultaneously. Ryder emphasized the importance of a robust peg mechanism and adequate collateralization for maintaining stability. He also discussed the censorship resistance and scalability challenges faced by DeFi stablecoins. In Ethena’s approach, Ryder mentioned using crypto-native collateral to achieve censorship-resistant collateral.
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