Fantom Creator Warns of Potential Crypto Meltdown Due to Risky Incentives

cryptonews.com:

Fantom creator Andre Cronje recently expressed concerns about risk management practices within a specific DeFi project, indirectly referencing Ethena Labs’ synthetic dollar, USDe. Without explicitly naming the protocol, Cronje highlighted issues related to funding rates in perpetual futures contracts.

Cronje, a notable figure in DeFi, cautioned about potential risks associated with incentives linked to the synthetic dollar, comparing it to past market meltdowns like the Terra-Luna incident. 

Every so often we see something new in this space. I often find myself on the mid curve for an extensive amount of time. I am comfortable here. That being said, there have been events in this industry I wish I was more curious about, there have also been events I definitely did…

— Andre Cronje (@AndreCronjeTech) April 3, 2024

In an April 3 tweet, Cronje questioned the assumption that simply closing positions when markets turn negative is a viable risk management strategy, likening it to a meme due to its practical challenges. He warned about the risks associated with relying on positive funding rates during positive market conditions, as this can quickly turn negative, leading to liquidations and potentially “unbacked assets.”

Cronje also referenced the “law of large numbers” as a potential countermeasure, similar to strategies seen in other protocols like UST’s $1 billion BTC fund. However, he cautioned that such strategies may work until they don’t, implying potential vulnerabilities in risk management practices.

His tweet raised questions about the sustainability of high yields offered by Ethena’s synthetic dollar, USDe, particularly noting concerns that excessive optimism in positive market conditions could lead to unbacked