Aave's $6.4B Ethena Loop Risks Unleashing Stablecoin Storm

Ethena’s synthetic dollar, USDe, has seen a dramatic expansion in its footprint on the Aave lending protocol, raising concerns among risk analysts within the DeFi ecosystem. According to data from a Dune Analytics dashboard, approximately $6.4 billion in Ethena-related assets is now on Aave, including $4.2 billion in Pendle principal tokens, $1.3 billion in USDe, and $1.1 billion in staked USDe as of August 14. This surge is attributed to a growing "loop" trade between Pendle and Aave, where users leverage sUSDe yields to mint fixed-rate principal tokens and then borrow against those positions to acquire more USDe or sUSDe, repeating the cycle to amplify returns [1].

Ethena's USDe, a yield-bearing and delta-neutral synthetic dollar, is backed by a combination of basis trades and liquid assets. While proponents argue that USDe offers a transparent and crypto-native cash alternative, critics point out that its yields are dependent on derivatives funding and centralized finance (CeFi) venues, which could pose systemic risks during downturns. Chaos Labs, a key contributor to Aave governance, highlighted these concerns in an analysis from August 2. The firm noted that Ethena-linked exposure on Aave exceeded $4.7 billion at the time and warned that the looping trade could become reflexive, meaning rising yields might fuel further growth, but a reversal could trigger rapid deleveraging, stressing stablecoin markets [1].

The risk analysis also pointed to another potential issue: Ethena has deposited a portion of its backing capital—approximately $580 million in USDC and USDt—into Aave. This move, while beneficial for stacking yield, could strain redemption liquidity if the assets are withdrawn during times of stress. Chaos Labs recommended self-limiting how much of USDe’s reserves are redeployed into Aave and suggested parameter changes, such as a time-sensitive slope for USDe borrowing costs, to smooth potential unwinds [1].

The implications of these developments could shape the future of Ethena’s Aave-centric growth engine. If perpetual futures funding rates decline and sUSDe yields compress, borrowers may shift debt into other stablecoins, increasing utilization and borrowing costs in Aave’s core pools. Pendle PT positions could also face downward pressure, though falling forward yields typically cause PT prices to rise, mitigating some slippage during unwinds. For now, however, the data continues to trend upward. As of late August, Ethena’s Aave footprint had expanded significantly, reflecting the deep integration of the fixed-income trade into DeFi’s money markets [1].

Meanwhile, Cold Wallet, a new entrant in the crypto space, is attracting attention for its presale performance. As of August 19, 2025, Cold Wallet (CWT) has raised $6.2 million in Stage 18 of its presale, with the token price set at $0.00998. The project aims for a $0.3517 listing price, offering the potential for a significant return on investment. The presale’s momentum is driven by Cold Wallet’s utility-focused design, including features like biometric access, multi-signature approvals, time-locked transactions, and an emergency wallet lockdown [3].

Cold Wallet’s growing traction is outpacing many well-known projects in terms of both presale speed and practical utility. The wallet incentivizes real-world usage by rewarding users with CWT tokens for gas fees, swaps, and on/off-ramp activity. This model differentiates it from speculative assets and positions it as a long-term value proposition. The presale is structured in 150 stages, with each stage increasing the token price incrementally. With early stages selling out quickly, investors are advised to act promptly to secure allocations at the most favorable price points [3].

Source:

[1] Chaos Labs debates USDe risks as Pendle looping trade swells Ethena’s Aave footprint to $6.6 billion (https://www.theblock.co/post/367265/chaos-labs-debates-usde-risks-as-pendle-looping-trade-swells-ethenas-aave-footprint-to-6-6-billion)

[2] AMA: Pudgy Penguins and building the internet's Mickey (https://www.reddit.com/r/CryptoCurrency/comments/1mq8zd2/ama_pudgy_penguins_and_building_the_internets/)

[3] Cold Wallet's $6.2M Presale Surge Outpaces Arbitrum and Cardano for 2025's Best Long-Term Picks (https://coincentral.com/cold-wallets-6-2m-presale-surge-outpaces-arbitrum-and-cardano-for-2025s-best-long-term-picks/)