[Gauntlet] - Parameter Recommendations for Ethena Looping Cluster in Euler Yield (2025-04-25)
Gauntlet has reviewed Objective Labs’ proposal for a dedicated Ethena looping cluster in Euler Yield. We concur that there is ample opportunity for Euler to capture a larger share of the DeFi activity for Ethena assets. Should the community wish to pursue this opportunity, we recommend the following parameter updates to optimize risk-adjusted capital efficiency for this cluster.
Cap Recommendations
PT-sUSDe has sufficiently high swap liquidity to SY in its Pendle pool. With present DEX liquidity a swap of sUSDe to stablecoin can withstand up to 40M sUSDe before incurring 10% price impact. However we recognize the capacity available in competitors for the PT, and note Ethena’s tested resilience, believing holding risk to be low. We recommend a small downward adjustment to the caps for sUSDe itself but are aligned with Objective Labs for the PT recommendations, as well as USDe.
We recommend a slight adjustment to the eUSDe borrow cap based on our IRM recommendation below.
| Vault | Supply Cap | Borrow Cap |
|---|---|---|
| eUSDe | 40M | 34M |
| sUSDe | 30M | 9M |
Interest Rate Curve Recommendations
For eUSDe, presently there is ~$24.2M supplied to the vault. Of this, the proportion being used as collateral in positions with a health factor < 1.053 (corresponding to the health where a 5% price drop would result in liquidation) is ~$3.7M, or approximately 15.3%. Though such a depeg is a long tail event, we believe it prudent to apply caution while encouraging enhanced usage. Additionally, Pendle implied APY has been hovering between approximately 7.5% and 9% since our last analysis for the IRM, currently sitting at ~8.4%. Therefore we believe the current kink rate is already competitive for attracting loopers.
| Vault | Base rate | Kink | Rate at kink | Rate at 100% (max) |
|---|---|---|---|---|
| eUSDe | 0% | 85% | 7% | 80% |
We are aligned with the update to the sUSDe IRM proposed by Objective Labs, which better captures current demand and improves utility for interest rate arbitrageurs while constraining outsize borrows for this yield-bearing asset.
LLTV Recommendations
All of USDe, eUSDe, sUSDe, and the PT’s price configurations share the USDe/USD component Pyth oracle. We agree that for these correlated assets, pairwise LLTVs can be slightly raised with minimal additional risk to users, and LTV spreads can be lowered with the same effect based on expected user profiles and available conversion paths for liquidators. We note the potential for sUSDe/USDe market correlation to lower during stress scenarios.
Our recommended adjustments are shown. This includes slightly lowering LLTVs for correlated pairs with longer conversion paths, and slightly raising the LTV spread for non-correlated assets. We also believe the LTV spreads for eUSDe can be slightly lowered at this point with minimal additional risk. Otherwise we agree with the suggestions made by Objective Labs.
| Collateral | Debt | LLTV | Borrow LTV |
|---|---|---|---|
| PT-sUSDe | sUSDe | 94% | 93% |
| PT-sUSDe | USDe | 92.5% | 91.5% |
| PT-sUSDe | eUSDe | 92% | 91% |
| PT-sUSDe | USDtb, USDC, USDT, PYUSD, RLUSD, wM, USDS, sUSDS, DAI, sDAI, USD0, USDtb | 88% | 85.5% |
| PT-eUSDe | eUSDe | 94% | 93% |
| PT-eUSDe | USDe | 93.5% | 92.5% |
| PT-eUSDe | USDtb, USDC, USDT, PYUSD, RLUSD, wM, USDS, sUSDS, DAI, sDAI, USD0, USDtb | 88% | 85.5% |
| eUSDe | USDe | 94% | 93% |
| eUSDe | wM, USDT, USDS, USDC, USD0, RLUSD, PYUSD, DAI, USDtb | 88% | 86% |
Next Steps
- We welcome community feedback.