Ethena Pay’s 11x leverage loop promises high yield, but risks hidden losses
Ethena Pay launched its Earn+ vault service on Oct. 28, offering up to 12% APY through an 11x leverage strategy that may mask potential losses.
Ethena Pay's new Earn+ vault design pairs USDe collateral with USDT borrowing, creating a potential gap between the value a lending protocol reports and the money a user could recover. The service, launched on Oct. 28, targets approximately 11 times leverage and advertises up to 12% APY.
Earn+ is an external vault service run by Upshift and Steakhouse through Aave v4 on Avalanche. The app's design follows a specific oracle price reference that could mask risks if USDe falls against USDT.
Oracle Risk
The oracle supplies prices that the lending protocol uses to value collateral and debt. Aave's health factor compares collateral value with borrowing to determine proximity to liquidation. However, Ethena Pay's oracle follows USDT rather than USDe directly.
In its Oct. 20 technical assessment, Aave Labs explicitly stated that the Avalanche USDe price reference follows USDT and would miss a USDe-specific downside depeg. This creates a scenario where a USDe-only market discount might leave oracle-valued collateral health unchanged while actual equity decreases.
If both sides of a position follow the same USDT reference, a USDe-only market discount can leave oracle-valued collateral health unchanged in response to that discount.
Leverage and Loss Potential
The 11x USDe-to-USDT loop can appear healthy at lending prices while a lower exit price leaves borrowers with less equity. For example, at 11 times leverage, $100 of initial equity could support $1,100 USDe and $1,000 USDT of debt. If USDe's market price falls, the remaining value after debt repayment decreases accordingly.
Borrowing costs further erode returns before liquidation. A 1% increase in annual USDT borrowing cost would reduce simple annual return on initial equity by about 10%, holding all other inputs fixed. Accrued interest also increases debt over time, potentially lowering the health factor.
User Limitations and Protections
Ethena's FAQ caps allocations at $4.5 million overall, with individual limits of $20,000 for Standard users, $50,000 for Pro and $200,000 for VIP. The launch attracted more than $8 million of USDe balances with approximately 1,400 active users, though access remains restricted to 47 countries.
Upshift's risk framework describes configurable withdrawal buffers and limits on reported net asset value changes, with owner multisig powers to pause withdrawals. However, economic losses remain possible even when reported NAV changes are bounded. The app promises withdrawal requests processed within 24 hours, though FAQ warns they can take longer.
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