• Files within scope of audit
• Goals of Ethena Protocol
• Gitbook
• How we generate yield
• Maintain delta neutrality
• Contracts architecture
• Owner of contracts

Smart contract files are located in /protocols/USDe/contracts

USDe.sol EthenaMinting.sol and the contract it extends, SingleAdminAccessControl.sol StakedUSDeV2.sol, the contract it extends, StakedUSDe.sol and the additional contract it creates USDeSilo.sol

To get an overview of Ethena, please visit our gitbook: https://ethena-labs.gitbook.io/ethena-labs

Ethena's synthetic dollar, USDe, will provide the first censorship resistant, scalable and stable crypto-native solution for money achieved by delta-hedging staked Ethereum collateral. USDe will be fully backed transparently onchain and free to compose throughout DeFi.

Users mint USDe and Ethena opens an equivalent short ETH perps position on perps exchanges. stETH yields 3-4% annualized, while short ETH perps yield 6-8%. The combined long and short position daily yield is sent to an insurance fund, and then sent to the staking contract every 8 hours.

The long stETH and short ETH perps creates a position with value that's fixed to the time of it's creation. Imagine ETH = $2000, user sends in 10 stETH to mint 20000 USDe, and Ethena shorts 10 ETH worth of perps.

If the market goes down 90%, the long 10 stETH position is now worth $2000, down from $20000. While the short 10 ETH perps position has an unrealized P&L of $18000. If the user wishes to redeem his USDe, the short perps position can be closed to realize $18000 of profits, and buy 90 stETH. Along with the original 10 stETH, the user is returned 100 stETH, also worth $20000.

USDe.sol is the contract of our stablecoin. It extends ERC20Burnable, ERC20Permit and Ownable2Step from Open Zepplin. There's a single variable, the minter address that can be modified by the OWNER. Outside of Ownable2Step contract owner only has one custom function, the ability to set the minter variable to any address.

The minter address is the only address that has the ability to mint USDe. This minter address has one of the most powerful non-owner permissions, the ability to create an unlimited amount of USDe. It will always be pointed to the EthenaMinting.sol contract.

EthenaMinting.sol is the contract and address that the minter variable in USDe.sol points to. When users mint USDe with stETH (or other collateral) or redeems collateral for USDe, this contract is invoked.

The primary functions used in this contract is mint() and redeen(). Users who call this contract are all within Ethena. When outside users wishes to mint or redeem, they perform an EIP712 signature based on an offchain price we provided to them. They sign the order and sends it back to Ethena's backend, where we run a series of checks and are the ones who take their signed order and put them on chain.

By design, Ethena will be the only ones calling mint(),redeen() and other functions in this contract.

In the mint() function, order and signature parameters comes from users who wishes to mint and performed the EIP 712 signature. route is generated by Ethena, where it defines where the incoming collateral from users go to. The address in route we defined must be inside _custodianAddresses as a safety check, to ensure funds throughout the flow from users end up in our custodians within a single transaction. Only DEFAULT_ADMIN_ROLE can add custodian address.

Similar to minting, user performs an EIP712 signature with prices Ethena defined. We then submit their signature and order into redeem() function. The funds from redemption comes from the Ethena minting contract directly. Ethena aims to hold between $100k-$200k worth of collateral at all times for hot redemptions. This mean for users intending to redeem a large amount, they will need to redeem over several blocks. Alternatively they can sell USDe on the open market.

Some users trade through smart contracts. Ethena minting has the ability to delegate signers to sign for an address, using setDelegatedSigner. The smart contract should call this function with the desired EOA address to delegate signing to. To remove delegation, call removeDelegatedSigner. Multiple signers can be delegated at once, and it can be used by EOA addresses as well.

By setting a delegated signer, the smart contract allows both the order.benefactor and delegated signed to be the address that's ecrecovered from the order and signature, rather than just order.benefactor.

EthenaMinting.sol have crucial roles called the MINTER and REDEEMER. Starting with MINTER, in our original design, they have the ability to mint any amount of USDe for any amount of collateral. Given MINTER is a hot wallet and is an EOA address, we considered the scenario where this key becomes compromised. An attacker could then mint a billion USDe for no collateral, and dump them on pools, causing a black swan event our insurance fund cannot cover.

Our solution is to enforce an on chain mint and redeem limitation of 100k USDe per block. In addition, we have GATEKEEPER roles with the ability to disable mint/redeems and remove MINTERS,REDEEMERS. GATEKEEPERS acts as a safety layer in case of compromised MINTER/REDEEMER. They will be run in seperate AWS accounts not tied to our organisation, constantly checking each transaction on chain and disable mint/redeems on detecting transactions at prices not in line with the market. In case compromised MINTERS or REDEEMERS after this security implementation, a hacker can at most mint 100k USDe for no collateral, and redeem all the collateral within the contract (we will hold ~$200k max), for a max loss of $300k in a single block, before GATEKEEPER disable mint and redeem. The $300k loss will not materialy affect our operations.

Further down the line, there has been considerations to give external organisations a GATEKEEPER role. We expect the external organisations to only invoke the gatekeeper functions when price errors occur on chain. Abuse of this prvileage means their GATEKEEPER role will be removed.

The DEFAULT_ADMIN_ROLE, also our ethena multisig, is required to re-enable minting/redeeming. DEFAULT_ADMIN_ROLE also has the power to add/remove GATEKEEPERS,MINTER and REDEEMER.

DEFAULT_ADMIN_ROLE is the most powerful role in the minting contract, but is still beneath the OWNER role of USDe.sol, given that the owner can remove the minting contract's privilege to mint.

StakedUSDeV2.sol is where holders of USDe stablecoin can stake their stablecoin, get stUSDe in return and earn yield. Our protocol's yield is paid out by having a REWARDER role of the staking contract send yield in USDe, increasing the stUSDe value with respect to USDe.

This contract is a modification of the ERC4626 standard, with a change to vest in rewards linearly over 8 hours to prevent users frontrunning the payment of yield, then unwinding their position right after (or even in the same block). This is also the reason for REWARDER role. Otherwise users can be denied rewards if random addresses send in 1 wei and modifies the rate of reward vesting.

There's also an additional change to add a 14 day cooldown period on unstaking stUSDe. When the unstake process is initiated, from the user's perspective, stUSDe is burnt immediately, and they will be able to invoke the withdraw function after cooldown is up to get their USDe in return. Behind the scenes, on burning of stUSDe, USDe is sent to a seperate silo contract to hold the funds for the cooldown period. And on withdrawal, the staking contract moves user funds from silo contract out to the user's address. The cooldown is configurable up to 90 days.

Due to legal requirements, there's a SOFT_RESTRICTED_STAKER_ROLE and FULL_RESTRICTED_STAKER_ROLE. The former is for addresses based in countries we are not allowed to provide yield to, for example USA. Addresses under this category will be soft restricted. They cannot deposit USDe to get stUSDe or withdraw stUSDe for USDe. However they can participate in earning yield by buying and selling stUSDe on the open market.

FULL_RESTRCITED_STAKER_ROLE is for sanction/stolen funds, or if we get a request from law enforcement to freeze funds. Addresses fully restricted cannot move their funds, and only Ethena can unfreeze the address. Ethena also have the ability to repossess funds of an address fully restricted. We understand having the ability to freeze and repossess funds of any address Ethena choose could be a cause of concern for defi users decisions to stake USDe. While we aim to make our operations as secure as possible, interacting with Ethena still requires a certain amount of trust in our organisation outside of code on the smart contract, given the tie into cefi to earn yield.

Note this restriction only applied to staking contract, there are no restrictions or ability to freeze funds of the USDe stablecoin, unlike USDC.

Ethena utilises a gnosis safe multisig to hold ownership of its smart contracts. All multisig keys are cold wallets. We will require 7/10 or more confirmations before transactions are approved. This multisig is purely for the purpose of owning the smart contracts, and will not hold funds or do other on chain actions.