Ethena’s total value locked may increase as a result of MakerDAO’s $600M DAI maneuver.
The demand for Morpho DAI vaults indicates a preference for USDe over sUSDe.
In DAI allocation, the risk approach concentrates on the 86% and 91.5% LLTV pools.
According to reports, MakerDAO is thinking of making a sizable $600 million DAI investment into USDe and staked USDe (sUSDe) through the DeFi lending protocol developed by Morpho Labs. This action expands MakerDAO’s operations into the Bitcoin lending market and is consistent with the company’s expansion plans.
The Proposed Allocation by MakerDAO and Its Justification
The plan that MakerDAO is evaluating calls for dividing up a sizeable amount of its stablecoin, DAI, between USDe and the staked counterpart, sUSDe. The renowned stablecoin developer Ethena Labs is the source of both of these assets. Seraphim Czecker, Head of Growth at Ethena, expects that if the MakerDAO community accepts this allocation, it will significantly raise the overall value locked in Ethena and meet the company’s internal growth projections.
Not a joke: @MakerDAO considering allocating up to $600m DAI into sUSDe and USDe via @MorphoLabs with possibility to go up to $1 billion
Ethena TVL growth is on track with internal expectationshttps://t.co/kKEhPoDwQm pic.twitter.com/F1QP1xPBFW
— Seraphim (@MacroMate8) April 1, 2024
Initial data from the Morpho Spark DAI vault shows a strong level of demand. When compared to sUSDe, users clearly prefer USDe pools and their preferences are more consistent with pools with greater loan-to-value (LLTV) ratios. This preference, which suggests a tactical allocation shift in favour of USDe, is likely due to the alluring point offerings and the ability to acquire ENA tokens through USDe.
Furthermore, allocating more money to USDe, which can be promptly redeemed, compared to sUSDe, which has a one-week unstaking time, would reduce the liquidity risk it presents. In addition to enhancing the risk profile of the investments overall, this action would benefit Ethene’s revenue and the insurance funds.
Risk Assessment and Vaulting Methodology
The application from MakerDAO takes into account a number of risk considerations related to the vault, including counterparty risks, custody and exchange transparency, and Morpho rate models. Shared ownership commits a significant amount of collateral to Binance and implicitly holds it at Ceffu, raising questions about counterparty risk.
Furthermore, Ethena’s exposure to liquid staking tokens (LST) represents a significant systemic risk. The fact that LSTs make up a very minor portion of its collateral pool still mitigates the risk.
Allocation and Suggestions for Parameters
The proposal is to cap the first total allocation at 600 million DAI and define the DDM (Dynamic Debt Mechanism) line parameter at 1 billion DAI in accordance with the risk assessment. This cautious approach enables future risk exposure to be scaled efficiently.
We advise focusing on the 86% and 91.5% LLTV pools due to their favorable risk/reward ratio. However, we also recommend slightly increasing allocations to the 77% and 94.5% LLTV pools for data validity and interest rate model calibration.
