• Ethena proposes adding Solana as a backing asset for USDe, enhancing liquidity and market alignment.
  • Gradual integration of SOL aims to boost USDe’s revenue and capitalize on favorable funding rates in 2024.
  • BNSOL and bbSOL may join SOL in USDe’s backing, diversifying collateral while maintaining risk management.

Ethena Labs has introduced a proposal to include Solana as a backing asset for its decentralized stablecoin, USDe. This proposal outlines the addition of SOL using a similar hedging mechanism already in place for BTC and ETH perpetual futures. 

The aim is to take advantage of SOL’s liquidity and market presence while also considering Binance Liquid Staked SOL (BNSOL) and Bybit Liquid Staked SOL ( bbSOL ) as additional backing assets.

The Ethena community has initiated a proposal to add SOL as a backing asset for USDe, with a mechanism that is basically the same as the hedging mechanism currently used by Ethena for BTC and ETH perpetual futures. The proposal also includes BNSOL (Binance Liquid Staked SOL) and…

— Wu Blockchain (@WuBlockchain) October 14, 2024

Ethena Proposed Allocation Strategy

The proposal suggests a gradual scaling of USDe’s backing to SOL in collaboration with the Risk Committee. This methodical approach is necessary because SOL’s perpetual futures market is relatively younger. It also has less historical trading data compared to BTC and ETH. 

Despite these factors, SOL’s open interest across venues where Ethena executes hedging transactions stands at nearly $2 billion. The initial allocation of $100-200 million in SOL positions is expected to represent 5-10% of SOL’s total open interest. It will mirror Ethena’s current approach with BTC and ETH.

SOL’s Potential for Protocol Revenue

Besides liquidity, SOL’s favorable funding rates in 2024 present a strategic advantage. According to Ethena Labs, funding rates for SOL have been more beneficial this year compared to those for BTC and ETH. Integrating SOL into the USDe backing would create opportunities to generate additional protocol revenue when market conditions improve. 

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Moreover, Ethena expects this move could further align USDe with one of the largest ecosystems in the cryptocurrency landscape, potentially increasing demand for USDe as a stablecoin.

Next Steps

The proposal is now being reviewed by the Risk Committee, which will have seven days to deliberate and cast their votes. The addition of SOL as a backing asset requires a unanimous vote from the committee members before it can move forward. If approved, Ethena plans to gradually introduce SOL as part of the USDe collateral. They will keep monitoring the market conditions to ensure a smooth integration.

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