Phantom’s founder worries negative funding rates will introduce the next Terra-like ‘unfunded asset’.

Phantom creator Andre Cronje fears the impetus behind Athena Labs USD could lead to the next Terra-like meltdown. Cronje is considered one of the most influential thought leaders in decentralized finance (DeFi).

Without mentioning the protocol or the synthetic dollar directly by name, Cronje shared a note about his concerns about the risk management behind Athena Labs, highlighting the issue with the amount of funding in perpetual futures contracts. In an April 3 X post, Cronje wrote:

“Right now things are going well[because]the market is positive and the funding rate is positive [because everyone is happy being long]), eventually this changes, funding becomes negative, the margin/guarantee ceases, and you have an unfunded asset.

Athena's US dollar stablecoin production launched on the public network on February 19 at a 27.6% annual percentage yield (API), significantly higher than the 20% yield of TerraUSD (UST) on the anchor protocol. It collapsed in May 2022, losing tens of billions of dollars in value in a matter of days.

Following the mainnet's launch, Athena Labs founder Guy Young told Cointelegraph that widespread concerns about the fallout's ashes are a sign of a mature industry with healthy skepticism.

When asked about the risks related to the negative change of financial rates, Yang said that it is not a big concern, emphasizing that the amount of money only changed to negative below -3% for one week during 2022, which was among the worst years in the crypto market.

Athena will take other measures, including an emergency insurance fund and arbitrage mechanisms, in case the liquidity goes negative, Guy told Cointelegraph.

“Think of this as an external interest rate to the system, if the interest rate is too low, it's the market telling us that the supply of USDe is too high relative to the demand in the system… so when the interest rate goes down. , you expect users not to buy into the product and keep redeeming from it, and in the process we have to remove the shorts that allow the funding to drop to zero or more.

While the Encore protocol product is easily built, Guy highlighted that the USD product is publicly verified and generated by recording profits and shorting Ether's perpetual futures contracts.

According to Jay Sik Choi, an analyst at Greythorn Asset Management, the anchor protocol's artificially inflated yield was unsustainable, unlike the volatile yield introduced by the USDe.

“Real yield on Ancore paid ~5.81% and 19.45%, which we saw as a risk factor because the yield backing the product is less than what it pays… There is no such thing as ‘risk-free.' stETH).

Related: Athena becomes top-grossing DApp in crypto