LlamaRisk Proposal Threatens to Flip Ethena's USDe Yield Loops

A proposal by LlamaRisk to increase borrowing costs for Ethena's USDe on Aave V3 markets has sparked concern that it could flip the token's yield loops into negative carry. The recommendation, made on September 9th, would raise the base variable borrow rate from 5% to 6% across five markets: Core, Plasma, Monad, Mantle, and Avalanche.

The proposal also suggests reducing Slope1 by one percentage point on every deployment. This change is aimed at targeting leveraged sUSDe positions that recycle USDe into yield-bearing tokens. TokenLogic's staged repricing program has argued that a higher borrowing floor could reduce these loops and lift the yield available to remaining sUSDe holders towards 5.3%.

However, the current supply APY for sUSDe is only 4.72%, according to Aavescan's snapshot. The proposed changes would increase borrower APRs by 13 to 89 basis points across markets holding about $323.8 million of USDe debt against $1.18 billion supplied.

The change in borrowing costs could have significant implications for investors who rely on these yield loops to generate returns.