Risks & Mitigations

Potential risks of using the Strata Protocol and the mechanisms in place to mitigate them.

This section highlights the primary risks associated with using the Strata Protocol, the mechanisms designed to mitigate them, and our ongoing commitment to strengthening protocol resilience.

Strata is founded on the principle of balancing risk and yield through transparent, on-chain risk segmentation. By structuring crypto-native yields into distinct senior and junior tranches, the protocol allows investors to select exposure aligned with their risk preferences while maintaining capital efficiency across the system.

At its core, Strata is built on the belief that scalable yield starts with scalable risk management. As the protocol evolves, continuous refinement of its mechanisms and underlying yield sources will drive Strata’s mission to democratize access to risk-optimized, sustainable crypto-native yields.

Underlying Collateral & Protocol Risk

• Description: Potential insolvency of the underlying protocol or collateral.

• Mitigations:

  • Collateral is restricted to Ethena's staked USDe, which has repeatedly proven its solvency and transparency through third-party verified proof of reserves, including during major market drawdowns.

  • In the event of Ethena or USDe insolvency, the junior tranche serves as the first-loss capital within the Strata structure.

  • Find out more about the USDe risks and how Ethena mitigates them: Ethena Docs

Market Risk

• Description: Risk of loss due to negative funding rates and sUSDe APY lower than the benchmark rate

• Mitigations:

  • Ethena mitigates downside risk by allocating to liquid stablecoins and tokenized T-Bills during periods of negative funding rates, and maintains an embedded insurance fund that absorbs potential strategy losses. To know more: Ethena Docs

  • Senior tranche (srUSDe) is principal-protected in USDe terms and paid first the share of the yield generated by the protocol based on the Dynamic Yield Split mechanism and any shortfall is covered by the junior tranche (jrUSDe). In extreme scenarios (jrUSDe TVL ~ 0, sUSDe APY < benchmark rate), srUSDe APY will be equivalent to the sUSDe APY.

  • Junior tranche (jrUSDe) may experience negative yield when sUSDe APY drops below the benchmark rate, as a portion of its reserves is reallocated to maintain the srUSDe’s guaranteed floor yield. In such scenarios, jrUSDe holders may incur partial or total principal loss, as they function as the first-loss capital in the system.

Liquidity Risk

• Description: Risk of significant liquidity outflows from the protocol potentially impacting overall system stability. For instance, large withdrawals from the junior tranche.

• Mitigations:

  • Junior tranche (jrUSDe) redemptions and senior tranche (srUSDe) minting are temporarily suspended when the senior coverage ratio is below 105%.

  • Coverage is a self-balancing mechanism - the thinner it is, the higher the yield for junior tranche, attracting more liquidity.

Smart Contract Risk

• Description: Vulnerabilities in smart contracts that USDe collateral is deployed into, or that manage USDe collateral may make Strata insolvent.

• Mitigations:

  • All Strata Protocol smart contracts are audited by reputable audit firms to ensure the highest level of security on the protocol. and audits are published here.

  • Ethena smart contracts audits can be accessed here. Any risks associated with Ethena and USDe are addressed through the mitigation measures outlined in the Underlying Collateral and Protocol Risk section above.

  • Strata uses third-party softwares to monitor our smart contracts 24/7 and to automatically respond to critical incidents

Operational Security Risk

• Description: Certain protocol functionalities, such as emergency rescue functions, are controlled by permissioned roles, which may become compromised.

• Mitigations:

  • All admin roles and contract ownership are controlled by timelocks, that have the proposer role assigned to ¾ admin multisig and all end-signers are cold wallets.

  • All actions are subject to a 48h timelock except pausing of the protocol and can be cancelled by the Guardian, ensuring strong oversight and protection against misconfiguration or compromise.

  • All multisig & timelock configurations can be accessed here.