Chaos Labs debates USDe risks as Pendle looping trade swells Ethena’s Aave footprint to $6.6 billion

Ethena's USDe boom is tying the synthetic-dollar issuer more closely to Aave, but some contributors to DeFi's largest lender warn the links carry risks.

A Dune Analytics dashboard tracking Ethena on Aave shows roughly $6.4 billion of related positions on the lending protocol as of last Thursday, Aug. 14, split across $4.2 billion in Pendle principal tokens linked, $1.3 billion in USDe, and staked USDe worth $1.1 billion.

Ethena's USDe is a yield-bearing and delta-neutral synthetic dollar backed by a mix of basis trades (long spot/short perps) and liquid assets. Critics argue its yields hinge on derivatives funding and CeFi venues, while proponents say it's a transparent, crypto-native cash alternative built for composability.

Loop trade

USDe's growing presence on lending protocol stems from a popular Pendle–Aave "loop" that has become a key growth driver for USDe. The mechanism is in play when users lock sUSDe yield via Pendle to mint fixed-rate principal tokens, then lever up on Aave by borrowing against those positions to purchase more USDe/sUSDe—repeating the cycle to amplify returns.

That composability has coincided with a sharp expansion in USDe supply, which has topped $11.3 billion, according to The Block’s data dashboard.

Risk teams inside Aave’s governance have taken notice. In an Aug. 2 analysis, Chaos Labs tallied over $4.7 billion of Ethena-linked exposure at the time and warned that the loop can become reflexive. This means that rising funding rates and yields fuel growth, but a reversal can force rapid deleveraging that stresses stablecoin markets on Aave.

The same post highlighted a second concern. Ethena has apparently deposited part of its own backing capital into Aave, about $580 million across USDC and USDtb, in a move that "stacks" yield but can strain redemption liquidity if withdrawn during stress. Chaos Labs urged self-limits on how much of USDe’s reserves are re-deployed into Aave and floated parameter changes, such as a time-sensitive slope for USDe borrowing costs, to smooth potential unwinds.

Any changes, along with swings in perpetual futures funding rates, could determine whether Ethena’s Aave-centric growth engine remains a benign yield ladder or becomes a transmission belt for volatility in the next contraction.

Chaos Labs’ governance note also mapped the contraction path. If funding rates fall and sUSDe yields compress, borrowers may swap debt out of USDe into other stables, pushing up utilization and borrowing costs in Aave’s core pools. Pendle PT positions can come under pressure, too, the analysts said, though PT prices often rise as forward yields fall, easing some unwind slippage.

For now, the numbers keep climbing. The Dune dashboard curated by community analyst Sealaunch shows Ethena's Aave footprint advancing into late August, reflecting how deeply the fixed-income trade has penetrated DeFi’s money markets.