CryptoQuant, a data provider, has issued a warning to holders of the USDe stablecoin, advising them to closely monitor Ethena's reserve fund to mitigate potential risks associated with negative funding rates.

Ethena Labs, the entity behind USDe, currently offers investors an annual yield of 17.2%, based on a rolling average over the past seven days. This yield is generated through a tokenized "cash and carry" trade strategy, involving the simultaneous purchase and shorting of assets to capitalize on funding payments.

Negative funding rates, particularly during prolonged periods, could necessitate substantial payments from Ethena's short positions to long position holders. While Ethena has allocated capital to a reserve fund for this purpose, the fund's adequacy is contingent upon the growth of USDe's market capitalization.

According to a CryptoQuant report, the current reserve fund of $32.7 million may only suffice for funding payments if USDe's market cap remains below certain thresholds. For instance, examples from ether (ETH) funding rates post-Merge upgrade and the FTX collapse suggest that the reserve fund would need significant growth to accommodate USDe's market cap, which has risen to $2.3 billion within two months of issuance.

To withstand a bear market period effectively, Ethena's keep rate – the portion of revenue allocated to the reserve fund – should ideally remain above 32%. This would ensure that the reserve fund is sufficiently robust to withstand periods of extremely negative funding rates.

As USDe holders navigate market uncertainties, monitoring Ethena's reserve fund and keep rate becomes crucial in managing associated risks. By staying vigilant and informed, investors can better navigate potential challenges and safeguard their interests in the volatile crypto landscape.