Ethena is a platform that is a synthetic dollar protocol on Ethereum and issues USDe, a digital currency pegged to the US dollar. On April 16, on-chain analytics firm CryptoQuant conducted a detailed review of the Ethena ecosystem and revealed the risks associated with the new stablecoin.

USDe's market cap surged 900% after it was launched in February, peaking at just under $2.4 billion this week, making it the fifth-largest stablecoin.

CryptoQuant's analysis shows that Ethena's current $32.7 million reserve fund is sufficient to cover extremely negative funding rates if USDe's market cap remains below $4 billion. However, as the USDe market cap increases, funding payments become larger as short positions also grow.

Ethena's "keep rate," the rate of return sent to reserves, is critical to appropriately growing reserves based on USDe's market value.

As a result, investors should monitor whether Ethena's reserve fund is in line with the market cap of USDe to safely handle extremely large negative funding rates.