Censorship Resistance

How USDe furthers censorship resistance

All assets backing USDe remains in "Off-Exchange Settlement" institutional grade solutions at all times. At no point in time is collateral deposited to any exchange to ensure the protocol's backing is never exposed to exchange failure.

Ethena utilizes "Off-Exchange Settlement" (OES) providers to hold backing assets. This enables Ethena to delegate/undelegate collateral to centralized exchanges without being exposed to exchange-specific idiosyncratic risk.

While using an OES provider requires a technological dependence upon the OES provider, it does NOT mean counterparty risk has simply been transferred from the exchange to the OES provider. OES providers typically, where not using an MPC solution, custody funds in a bankruptcy-remote trust to ensure the OES provider's creditors have no claim to the assets. In the case of a custodian provider failing these assets are expected to be outside the provider's estate and not exposed to the credit risk of the custodian.

All supported OES providers are non-US-based. This is likely a far better compromise with regard to risk from all perspectives than custodying funds with an exchange or holding fiat or treasury bonds in a US bank account or with a US based custodian. Treasury bonds and even stablecoins holding said treasuries present significant censorship risk. Note: Due to the current regulatory environment in the US, and with a strong focus on global regulatory compliance, we have chosen not to work with US-based service providers at this time.

In summary, while the use of OES providers may be viewed as more centralized vs fully onchain solutions, they represent very different censorship risk profiles than onchain stablecoins holding U.S Treasuries in a US bank account, or the opaque risk of holding assets on a centralized exchange. Empirically, these providers for custody services have never lost a dollar of users funds compared to the $7bn lost in DeFi hacks, and >$15bn in CeFi insitutions last cycle.

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