Summary:

i) We have taken onboard the community feedback and have retrospectively increased the sUSDe payout to include the full yield that was generated by sUSDe collateral backing, or in other words, all of the yield generated by sUSDe collateral was paid in full to sUSDe holders.

ii) We have outlined a more clear communication path forward on how we plan to manage sUSDe payments during the remainder of the Shard Campaign

iii) All yield generated by sUSDe collateral backing will continue to be paid, in full, to sUSDe holders during the remainder of the Shard Campaign.

iv) Included updates on the insurance fund plans for next week and the remaining shard campaign which will begin on 7am EST Monday 26th February.

Intro

Firstly, we want to thank everyone who has supported and engaged with Ethena and our products in this first week of launch. The core team has been blown away by the interest. We feel truly humbled with the excitement on our successful launch this week, but also recognize there is a large responsibility to ensure we are both:

i) responsible with the roll out of the product, and

ii) fair, open and transparent with our users who have supported us

It is worth noting Ethena’s products can, and likely will, have significant second order impacts on CeFi derivative markets as well as across every vertical in DeFi.

We therefore take this responsibility seriously and want to ensure the introduction of USDe to the market is done in a responsible way.

sUSDe Distribution Update:

Yesterday a tweet was shared from the @ethena_labs account which outlined that the sUSDe payout for last week was ~15% and below the ~24% yield generated by assets backing staked USDe.

We had made that decision to attempt to marginally slow down the growth of USDe, to ensure the roll out of the product was executed in a responsible manner. As outlined in the tweet, the sole use of retaining these funds were to the benefit of holders at a later date and not for the core team. The core team or business does not retain any portion of protocol yield.

However, it was not acceptable for us to do so without communicating up front with our users and explaining the rationale ahead of time.

We have immediately taken the community feedback onboard to correct this.

While the tweet did explicitly mention the retention of these protocol yields was for the sole benefit of holders - not for the core team or Ethena business - we did want to re-emphasize this point: no yield is being captured to the core team or Labs business.

For this reason, we have taken onboard the community feedback and have retrospectively increased the sUSDe payout from the 15% to 24% yield that was generated by sUSDe collateral backing, or in other words, all of the yield generated by sUSDe collateral was paid in full to sUSDe holders.

To be clear: the core team or Labs business has not retained a single dollar of yield generated by the assets backing USDe within the staking contract.

The value accrual from the Protocol backing assets attributable to the portion of USDe that has not been staked has been sent to the insurance fund.

We have seen a misunderstanding regarding the “implied” sUSDe yield noted in the post, which was not made clear enough. That “implied” figure essentially represents the total theoretical accrual to sUSDe in the case that 100% of Protocol yield from all backing assets were transferred to the staking contract; however, a portion of Protocol yield has always planned and will continue go to the insurance fund - hence, the reference to “rainy day” in the initial post. The yield generated by the collateral backing attributable to the portion of USDe that is not staked is intended for the insurance fund, as made clear below.

All of the Protocol yield generated assets backing the proportion of USDe that has been staked has now been transferred to the sUSDe staking contract for this last week.

Breakdown of the updated calculation:

1. Protocol APY = 24.0%

2. Average USDe balance for the week = $253m

3. Total protocol yield = $1.05m

4. Average % of USDe staked over the week (changes daily) = 58.6%

5. Required transfer to sUSDe contract to mirror Protocol APY = $630k

6. Transfer to sUSDe contract yesterday: $403k

7. Additional transfer made today to sUSDe: $227.5k

8. sUSDe accrues equivalent to Protocol APY = 24.0%

9. Remainder of Protocol yield from the collateral backing which was not staked in sUSDe protocol will go to insurance fund = $420k

The transaction receipt for second sUSDe transfer here:

Transaction receipt for non-sUSDe transfer to insurance fund here:

The communication yesterday was not acceptable, and we as a team are still getting used to building in public now being only 5 days into a public launch.

On the go forward for the rest of the Shard Campaign

i) All yield generated by assets backing the proportion of USDe staked in the sUSDe contract will be transferred into the sUSDe contract with zero take rate into the insurance fund

ii) The remainder generated from assets backing the proportion of USDe not staked in the sUSDe contract will be added to the insurance fund to show our immediate intent to ensure a safe and secure product for all holders.

Currently the percentage of USDe staked in the sUSDe contract is 43% and this may change through time.

If the above plan is to change, we will communicate publicly at least 7 days ahead of time.

This dynamic might be adjusted at the end of the Shard Campaign and we will provide an update well in advance.

We have taken the community feedback onboard and will work to ensure this is all communicated ahead of time in the right way going forward.

Insurance Fund Update

The team is awaiting final clearance of funds relating to the fundraise announced earlier this week before increasing the insurance fund to $10,000,000.

We expect this to be finalized by mid-next week and will provide a more detailed update for everyone once this is confirmed.

The insurance fund address is here:

0x2b5ab59163a6e93b4486f6055d33ca4a115dd4d5 with ENS ethenainsurancefund.eth.

There is currently ~$2m of capital in the insurance fund which Labs has contributed out of its own funds in advance of the above funding being processed. We will release a comprehensive explanation of the intended asset composition of the insurance fund next week.

For the duration of the shard campaign the insurance fund will continue to be funded by a portion of the yield generated by the Protocol asset backing which relates to the proportion of USDe that is not staked as outlined in the first section. Going forward, the insurance fund will be funded both in similar fashion and via future initiatives to raise capital.

It is worth noting the Labs team has decided on its own accord to earmark proceeds which we have raised from investors to support the ecosystem by providing users comfort and ultimately a more robust product going forward. .We hope adding to the Protocol’s margin of safety as it grows demonstrates Labs’ commitment to supporting the ecosystem until such time that Protocol governance and management is more decentralized.

A further update will be provided next week once the funds are cleared.

Decision Making

Clearly being only 5 days into our launch Ethena has not decentralized our decision making process to a desirable extent. This requires time to work towards, and we will be making our plans clear on this topic towards the end of the Shard Campaign.

We hope clarifying  the approach to Protocol yield and transfers into the sUSDe contract during the Shard Campaign provides sufficient clarity until that point.

Shard Campaign Update

On Monday February 26 at 7am EST we will be providing an update to the Shard Campaign where existing ceilings and limits will be increased, and new ways to interact with various DeFi applications will be introduced.

Those who are receiving Shards at the moment will continue to do so, and the new Epoch of rewards will be additive to the existing Epoch.

We want to thank you again for your support, emphasize again that the intention is to manage the roll out of the product as securely as possible, and we will ensure all communication going forward is made clear well in advance.