Ethena Labs Enhances USDe Stability with Chaos Labs Integration
Ethena Labs has taken significant steps to bolster the risk management framework for its synthetic dollar token, USDe, by integrating Chaos Labs’ advanced data authenticity technology known as Edge Proof oracles. This innovative integration aims to provide a robust verification process for USDe’s reserves, ensuring that the total dollar value of these reserves and their coverage relative to USDe’s supply are independently confirmed. Moreover, it guarantees that all reserves are approved through governance protocols and are delta-neutral, a vital aspect for maintaining stability.
In a recent announcement shared exclusively with CoinDesk, Chaos Labs highlighted the critical role of its Edge oracles. USDe operates as a synthetic stablecoin, striving to maintain a soft peg to the U.S. dollar. This is accomplished through an automated delta-hedging strategy that involves shorting bitcoin and ether perpetual futures, effectively offsetting any fluctuations in the prices of these cryptocurrencies.
Over the weekend, the synthetic stablecoin faced notable volatility, with its value dropping to 0.982 against Tether and 0.988 against USDC, according to data from Kaiko. This dip raised concerns regarding the protocol’s exposure to Bybit’s ether (ETH) derivatives market, especially following a major hack on the exchange that resulted in a malicious entity draining over $1 billion in ether. However, Ethena quickly reassured investors that all assets backing USDe were securely held off-exchange, and that its reserve fund was more than adequate to cover potential losses stemming from the Bybit incident.
The collaboration with Chaos Labs introduces an additional layer of credibility to the management of USDe’s reserves, reinforcing their security and transparency. The Edge Proof of Reserves (PoR) oracles will continuously monitor the reserve levels of USDe and verify the collateral backing these tokens. This monitoring process seamlessly integrates off-chain data from custodians and centralized exchanges into the on-chain environment, ensuring both scalability and robust support for institutional-grade applications.
Additionally, this integration offers automated alerts to inform users of any data anomalies or if reserve levels dip below necessary thresholds. Verified data will be made publicly accessible on Ethena’s transparency page and attestor interfaces, keeping all stakeholders well-informed.
According to the announcement, “This integration ensures continuous, independent verification of reserves, fostering greater transparency and security for all users. By leveraging real-time, tamper-resistant data, Ethena reinforces its commitment to a robust and reliable synthetic dollar.” The Edge oracle from Chaos Labs utilizes zero-knowledge proofs to guarantee security and privacy while delivering real-time and transparent data verification, including for reserves that are held off-chain or across various blockchains.
These oracles have successfully secured over $70 billion in transaction volume, providing risk management solutions to decentralized finance (DeFi) leaders such as AAVE, Jupiter, GMX, and Tether.
