Summary:
This RFC proposes deploying $10M of Treasury USDe into Ethena's Aave Liquid Leverage campaign via Merkl. The strategy uses recursive USDe/USDT loops on Aave V3 to generate blended yields in the 9-11% APR range on principal, compared to the current approximately 3.5% earned on idle sUSDe holdings. Net income is routed through the YRF for automated OHM buybacks and burns.
Context & Rationale:
Olympus currently holds significant USDe exposure across its Treasury, with the majority sitting in sUSDe earning approximately 3.54% APY. While sUSDe remains a sound reserve asset, the Ethena ecosystem now offers a structured, on-chain yield amplification strategy that materially improves capital efficiency without adding directional exposure to volatile assets.
Ethena launched a Liquid Leverage campaign in partnership with Merkl and the Aave Chan Initiative (ACI). The campaign rewards users who supply USDe or sUSDe on Aave V3 and borrow USDC, USDT, or USDS against it, distributing aEthUSDe as daily rewards. The strategy is explicitly designed for recursive leverage (looping), and Merkl's APR calculations reflect this - the published 13.97% Loop APR at 10x leverage is derived from real on-chain positions, not projections. The Merkl campaign runs indefinitely, with daily rewards of $52.83K distributed across $592M TVL.
The delta-neutral nature of USDe/USDT loops makes this suitable for Treasury deployment. USDe and USDT maintain near-parity by design, so leverage amplifies yield without creating meaningful price risk. The primary risks are smart contract exposure (Aave V3, well-audited), health factor management, and borrow rate variability. All are addressed in the framework below.
This proposal builds on OIP-190, which established the precedent for yield-seeking deployments with policy-bounded execution. The hurdle rate defined in OIP-190 (1.5x sUSDe yield) is materially exceeded here.
Target Allocation:
Tranche | Amount | Strategy | Target APR | Trigger
Commitment | $10M USDe | Aave Liquid Leverage (10x loop, USDT borrow) | ~9-11% | Governance ratification
Strategy Mechanics:
The Aave Liquid Leverage strategy works as follows:
- Deposit $10M USDe (converted from sUSDe) into Aave V3 as collateral (90% LTV)
- Borrow USDT against the collateral
- Swap borrowed USDT back to USDe
- Re-deposit the USDe and repeat for 10 loops
- Collect yield on the full notional position across three streams simultaneously
Because the initial deposit is sUSDe and each subsequent loop adds USDe, the final supply mix converges to approximately 85% USDe and 15% sUSDe at 10 loops. This is the realistic split used in the yield model below.
Capital flows at 10 loops on $10M starting position:
Loop | USDe Deposited | USDT Borrowed | Cumulative USDe Supplied | Cumulative USDT Debt
1 | $9,000,000 | $9,000,000 | $19,000,000 | $9,000,000
2 | $8,100,000 | $8,100,000 | $27,100,000 | $17,100,000
3 | $7,290,000 | $7,290,000 | $34,390,000 | $24,390,000
4 | $6,561,000 | $6,561,000 | $40,951,000 | $30,951,000
5 | $5,904,900 | $5,904,900 | $46,855,900 | $36,855,900
6 | $5,314,410 | $5,314,410 | $52,170,310 | $42,170,310
7 | $4,782,969 | $4,782,969 | $56,953,279 | $46,953,279
8 | $4,304,672 | $4,304,672 | $61,257,951 | $51,257,951
9 | $3,874,205 | $3,874,205 | $65,132,156 | $55,132,156
10 | $3,486,784 | $3,486,784 | $68,618,940 | $58,618,940
Total | | | ~$68.6M | ~$58.6M
10 loops at 90% LTV converges to 6.9x notional (geometric series). The "10x" label refers to the number of loop iterations, not the leverage multiplier.
Yield model at current rates (2026-03-25):
Component | Rate | Notional | Annual
USDe lending APR (base) | 1.00% | ~$58.6M | ~$586,000
Merkl Rewards APR | 3.26% | ~$58.6M | ~$1,911,000
sUSDe yield | 3.54% | ~$10.0M | ~$354,000
USDT borrow cost | -3.06% | ~$58.6M | -~$1,794,000
Net annual yield | | | ~$1,057,000
Net yield on $10M principal | | | ~10.6%
Note: The initial $10M is deposited as sUSDe; each subsequent loop adds USDe (USDT borrow swapped back to USDe). At 10 loops the supply mix is approximately 85% USDe / 15% sUSDe. Merkl rewards apply to the USDe supply leg only. The theoretical yield of 10.6% aligns with real-world observed positions running this strategy (9-11% range after gas and slippage). The Merkl UI publishes a maximum Loop APR of 13.97% at peak leverage; the model above reflects the realistic execution environment. All rates are live as of 2026-03-25 and subject to change.
Deployment Framework:
Minimum Liquidity Threshold:
Treasury must maintain a minimum of $5M in liquid sUSDS reserves to serve Cooler originations before deploying to this strategy. This threshold is consistent with OIP-190 and existing covenant policy.
Health Factor Management:
- Operating range: 1.05-1.15 (USDe and sUSDe are priced as USDT by the Aave oracle; no meaningful liquidation risk from price movement as long as the position does not go negative basis)
- Hard floor: 1.02 (immediate review trigger - not a liquidation risk, but a signal to rebalance)
- Execution authority: Treasury multisig, no governance vote required for routine health factor maintenance
- Standard HF warnings do not apply here due to oracle equivalence between USDe/sUSDe and USDT. The primary risk is borrow rate spike, not collateral depeg.
Hurdle Rate:
This deployment must maintain a net Loop APR of at least 1.5x the prevailing sUSDe rate. At current sUSDe rates (3.54%), the minimum acceptable net yield is approximately 5.3% on principal. The current 10.6% net yield exceeds this by 2.0x.
Exit Conditions:
Exit the position fully if any of the following occur:
- Net Loop APR falls below 1.5x sUSDe for 3 consecutive weeks
- Health factor falls below 1.02 (immediate rebalance)
- Aave V3 or Ethena governance changes that materially alter the risk profile
- The Merkl campaign ends and is not renewed, dropping Loop APR below hurdle rate
- A superior opportunity is identified with community support for direct pivot
Operational Mechanics:
- Entry: Treasury multisig executes the recursive loop via Aave V3 directly. Target: 10 loops at 90% LTV. Execution may be staged over 2-3 transactions to manage slippage.
- Reward harvesting: Merkl distributes aEthUSDe rewards on-chain. Harvested rewards are swapped to sUSDe and routed to YRF for automated OHM buybacks and burns.
- Health factor monitoring: Treasury team monitors daily. Review triggered at HF 1.02.
- Tracking: All positions tracked via public Treasury subgraph dashboards. Deployed capital and accrued rewards visible on-chain.
- Review: 15-day public update posted to this thread. Expansion decision made at that point.
Expected Outcomes:
YRF impact at $10M deployment:
- Additional yield from this strategy: ~$1.0-1.1M annually on $10M
- Blended Treasury yield improvement: from 3.5% baseline toward the 10-12% scenario range illustrated in the model
OHM buyback impact:
At ~$1.06M incremental annual yield routed to YRF, this generates sustained OHM buy pressure equivalent to approximately $88K per month at current rates. This is incremental to existing YRF income.
Strategic value:
This deployment establishes Olympus as an active participant in Ethena's Liquid Leverage ecosystem, deepens the OHM-USDe relationship, and creates a reusable execution template for future leverage campaigns as new venues emerge.
Risk Considerations:
- Smart contract risk: Aave V3 is the most battle-tested lending protocol in DeFi ($33.9B TVL). Ethena USDe has $3.56B sUSDe TVL. Risk is present but well-characterized.
- Health factor risk: USDe and sUSDe are priced as USDT by the Aave oracle, so conventional collateral depeg risk does not apply. The primary HF risk is a spike in USDT borrow rates compressing net yield, which exit conditions address.
- Rate risk: USDT borrow rates can spike. If borrow APY exceeds supply APY for 3 consecutive weeks, exit conditions trigger.
- Campaign risk: Merkl campaign is stated to run indefinitely with APR linked to sUSDe rate. If the campaign ends, Loop APR drops significantly. Exit conditions cover this.
Next Steps:
- Gather community feedback on this RFC for 3 days.
- Incorporate any amendments as a reply to this thread.
- Post OIP to Snapshot for formal ratification.
- Treasury executes $10M deployment via multisig within 3 days of ratification.
- 15-day public review posted to this thread. Expansion decision made at that point.
- Integrate position into Treasury subgraph tracking.
