Hedging System

Risk Management, Pricing, Trading, and Backing Orchestration

Ethena's "Hedging System" is composed of a number of offchain application services that enable many critical aspects of the user experience, including:

  • Calculating & publishing indicative prices for minting & redeeming USDe.

  • Returning pricing to mint & redeem USDe requests.

  • Ensuring the integrity of the system in real time.

The "Hedging System" ingests & interacts directly with the protocol's onchain smart contracts as well as the Ethereum blockchain.

The "Hedging System" is extremely risk-aware and has been designed in a manner wherein the preservation of protocol collateral is the most important consideration.


At a level lower of detail, the "Hedging System" performs the following functions (but is not limited to):

  • Ingests market data from CeFi Exchanges, "Off-Exchange Settlement" providers, Pyth and Redstone. This data includes order book updates, public trade information, as well as private portfolio, positions, orders, and trade information.

  • Normalizes and validates the integrity of market data.

  • Calculates the risk exposure of the portfolio relative to defined risk limits and goals.

  • Reconciles internal system information relating to the protocol's portfolio, positions, orders, and trade information with CeFi Exchanges & "Off-Exchange Settlement" providers.

  • Calculates & publishes indicative prices for minting & redeeming USDe.

  • Ingests, validates, and publishes pricing for mint & redeem USDe requests.

  • Determines where to route & execute orders upon a successful mint & redeem USDe request. This incorporates information about fees, depth of liquidity, existing positions, and other funding + basis opportunities.

  • In real-time, validates all information & operations to ensure integrity relative to internal & external expectations.

  • Monitors and alerts in regards to the availability of internal & external dependencies such as other internal services or CeFi Exchanges.

  • Orchestrates the movement of collateral between "Off-Exchange Settlement" providers and CeFi Exchanges.

  • Publishes & alerts Ethena team members to real-time developments. Enabling immediate manual intervention in the event of inconsistency.

  • Publishes & logs system data to different data stores. An example being the publication of trade data to a database.

Hedging FAQ

Notion FAQ Link

Last updated