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Without mentioning the name of the yield protocol he's referring to, Cronje's criticisms point to concerns about high-yield stablecoins.
Andre Cronje, the creator of the Fantom blockchain, has expressed concerns about the potential risks associated with non-collateralized stablecoins and their claimed high yield, drawing comparisons to the failed TerraUSD (UST) and its Anchor protocol.
In an April 3 post on X (formerly Twitter), Cronje, considered one of the most influential thought leaders in decentralized finance (DeFi), discussed the issue of funding rates in perpetual futures contracts without directly mentioning the name of the yield protocol he’s referring to or implying about.
Every so often we see something new in this space. I often find myself on the mid curve for an extensive amount of time. I am comfortable here. That being said, there have been events in this industry I wish I was more curious about, there have also been events I definitely did…
— Andre Cronje (@AndreCronjeTech) April 3, 2024
According to Cronje, while “things are going great now” in the market, this momentum could “eventually turn” such that funding becomes negative and margins and collaterals become liquidated over time. Such a phenomenon is particularly evident in unbacked assets, Cronje claimed.
Cronje’s concerns stem from the 27.6% annual percentage yield (APY) offered by USDe (a stablecoin product made by Ethena Labs) when it launched on public mainnet on Feb. 19. This yield was significantly higher than the 20% offered by the now-defunct TerraUSD (UST) on the Anchor protocol, which collapsed in May 2022, wiping out tens of billions of dollars in value within a few days.
In response to the concerns raised by Cronje and others in the DeFi community, Ethena Labs founder Guy Young acknowledged that the skepticism is a sign of a “maturing industry,” rising from the ashes of the Terra collapse. According to Young, negative funding rates are not a major concern, noting that rates only dropped below -3% for a week during the tumultuous crypto market of 2022, which is regarded as one of the worst years of crypto. The collapse of FTX also coincided in the same year.
Although Cronje only implied Ethena Labs’ USDe stablecoin, Young claims that the development team from Ethena Labs already placed measures to address the complexities of negative funding rates. These measures, according to Young, include an emergency insurance fund, as well as arbitrage mechanics that help prevent the negation from happening. Young also emphasized that USDe’s yield is publicly verifiable and generated through staking returns and shorting Ether perpetual futures contracts, unlike Anchor protocol’s artificially inflated and unsustainable yield..
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