Summary
This proposal implements four coordinated actions for the DOLA/sUSDe LP markets on FiRM:
- Feed Switch Implementation: Transition from the current Chainlink sUSDe-USD derived pricing to FeedSwitch V2 - an audited oracle architecture that defaults to stable pricing ($1 via USDT Chainlink feed) with guardian-controlled fallback to market pricing when conditions warrant.
- Collateral Factor Increase: Raise the collateral factor from 90% to 92%, enabled by the improved feed stability.
- Liquidation Incentive Reduction: Lower the liquidation incentive from 5% to 4%, justified by larger FiRM position sizes and reliable, measured liquidator support.
- Minimum Debt Increase: Raise the minimum debt from $3k to $5k to align with the reduced incentive and keep the market oriented toward larger position sizes.
These actions are interdependent: the feed switch provides the foundation that justifies the market parameter changes.
Background
The DOLA/sUSDe LP markets have demonstrated strong product-market fit, with approximately $86.5M in outstanding debt (split 77.75M in the Convex implementation and 7.7M in the Yearn vault) representing over half of FiRM’s total borrowing activity. User demand continues to grow, supported by competitive yields and efficient looping strategies. Important to note that DOLA’s (via FiRM) total exposure to USDe represents a small fraction of USDe’s circulating supply and redemption capacity.
The price oracle for the markets derives sUSDe LP token pricing through a multi-step process:
- Pull Chainlink sUSDe-USD feed, normalized by the sUSDe:USDe exchange rate
- Apply pessimistic pricing: take the lower of DOLA ($1 fixed) and the derived sUSDe value
- Multiply by the Curve pool’s virtual price to determine LP token value
This methodology directly reflects on-chain market conditions, and is the current pricing solution in place for all existing LP FiRM markets. However, market pricing introduces unnecessary volatility that may not always reflect fundamental value.
The RWG has, as of late, conducted extensive analysis of oracle behavior for redemption-backed stablecoins across FiRM markets. This research, spanning price feed mechanics, collateral factor sensitivity, and stress scenario modeling, has informed a two-track approach to address the above:
Immediate: Deploy FeedSwitch V2 as an interim solution providing stable pricing with guardian-controlled market fallback.
Ongoing: Continue development of an advanced proof-of-reserves hybrid architecture that programmatically ties pricing to verified backing levels. This longer-term solution will further reduce tail risk while minimizing trust assumptions.
The feed switch represents a pragmatic first step that can be deployed using audited, battle-tested code while the more sophisticated solution is developed. Automation of the switch itself remains the preferred end-state.
FeedSwitch V2 Overview
Architecture
FeedSwitch V2 is an evolution of the oracle switch mechanism successfully deployed for PT markets on FiRM. The implementation has been adapted for LP feeds with the following capabilities:
Feedswitch V2 Contract: 0x3326a10A83B77fAae29aedBB8AAEB18E5872624D
| Feature | Specification |
|---|---|
| Primary Feed | Stable pricing via USDT Chainlink feed (USDe = USDT assumption) |
| Fallback Feed | Current market-derived pricing (Chainlink sUSDe-USD methodology) |
| Guardian | RWG Multisig |
| Timelock | Configurable by governance; initially set to 0 (immediate switching) |
The RWG will communicate any feed switch via Inverse channels when practicable; however, because the timelock is 0 and switching is discretionary, borrowers must treat market-derived sUSDe pricing as an always-possible operating state.
Normal Conditions: The feed returns stable LP token pricing based on the USDT reference, insulating users from short-term market volatility that doesn’t reflect redemption value.
Stress Conditions: If market conditions warrant (per alert severity framework below), the RWG guardian triggers a switch to market-derived pricing, enabling liquidations to proceed based on actual market conditions.
Alert Severity Framework
Inverse Finance RWG will continuously monitor a set of non-exhaustive indicators to assess whether FiRM’s sUSDe markets should rely on stable reference pricing or switch to market-derived pricing. These indicators are provided for general transparency only; Inverse Finance reserves the right to switch the feed at its discretion, based on these signals and/or any other relevant information.
Key indicators we generally observe
- Mint/Redeem Readiness: signs of impaired redemption functionality or degraded operational throughput (e.g., buffer stress, throttling constraints, backlog/processing issues).
- Reserve Fund Monitoring: material changes in availability or usage that indicate persistent negative funding or reduced capacity to stabilize adverse conditions.
- Collateral Integrity/Transparency Drift: sustained changes in collateralization, liquid stable reserves, or other reported backing integrity metrics that may indicate elevated impairment risk.
- Broader Exchange/Contagion Events: major exchange failures or systemic market disruptions that could impair settlement, hedging, or convertibility paths, even absent confirmed direct exposure.
The framework is an internal monitoring process used to guide operational readiness and inform FeedSwitch decisions. The indicators referenced in this proposal are intentionally non-exhaustive. These indicators are operationalized into internal reports (including automated alerting components), but no single metric is intended to serve as a hard trigger; Inverse Finance reserves the right to switch feeds at its discretion, based on these factors and/or any other relevant information.
Rationale
The transition to FeedSwitch V2 addresses a specific dynamic in successful looping markets: as more liquidity concentrates in FiRM-associated pools, external liquidity sources thin, and market-derived pricing becomes an increasingly imperfect proxy for fundamental value.
For sUSDe specifically:
- Redemption value is backed by Ethena’s delta-neutral strategy
- The 7-day unlock creates temporary price dislocations that don’t reflect underlying value
- Market volatility can trigger liquidations that are punitive to users without corresponding protocol risk
FeedSwitch V2 introduces a controlled trust mechanism, preserving free-market pricing as the ultimate backstop, while defaulting to stable reference pricing during normal conditions where market dislocations do not reflect redemption value.
Operational Risk Alignment: USDT Reference
While the mint/redeem contract buffer policy supports both USDT and USDC, Ethena’s critical operating path is meaningfully tied to USDT liquidity, both through the RFQ mint/redeem rails (supported pairs include USDT/USDe and USDC/USDe) and through the stablecoin settlement flows that are most likely to be relied on during stressed conditions. In practice, this matters because if Ethena needs to facilitate redemptions under volatility, it may need to rebalance and refill the mint/redeem contract using the most liquid and operationally available stablecoin path.
Separately, Ethena documents that its delta-neutral hedge stack uses linear perpetuals denominated in USDT, which makes the system positionally long USDT (margin and PnL are in USDT). As a result, a severe USDT idiosyncratic event (e.g., depeg or impaired convertibility) can translate into backing degradation and weaken collateralization dynamics even if the underlying directional hedges are intact. Ethena explicitly frames this as a monitored risk.
Accordingly, referencing USDT rather than hardcoding $1.00 better matches the real settlement and risk surface during stress. It aligns pricing with the asset used in primary redemption/arbitrage flows and avoids overreacting to short-lived venue distortions, while preserving the ability to fall back to market-derived pricing during broader dislocations.
Policy Actions Validate Feed Design Assumptions
Recent Ethena risk-governance actions reinforce the distinction between fundamental backing risk and venue/market-structure dislocations, which is especially relevant for sUSDe given its 7-day cooldown to USDe. In November 2025, Ethena approved a last-resort discount buyback + burn tool that can be used only below a strict threshold (e.g., $0.99), funded from a capped portion of backing assets, with acquired USDe burned after settlement. Ethena has also communicated an ad-hoc proof-of-reserves update within 24 hours if emergency mechanics are used.
This matters because sUSDe discounts can arise from two distinct drivers: USDe-level stress (where anchor support and transparency measures are directly relevant) and sUSDe-specific time-to-liquidity pricing from the cooldown (where a spread can persist even if redemption value remains intact). The proposal’s oracle controls are designed around that reality - stable pricing as the default, with a market-based fallback during acute exchange disruption or broader contagion, without assuming temporary dislocations imply true backing impairment.
On-Chain Actions
Collateral Factor Increase (→ 92%)
The current 90% CF was set conservatively given market-derived pricing volatility. With stable pricing as the default:
- Reduced liquidation risk from transient price movements means users can maintain positions through short-term volatility
- 92% is an appropriate figure relative to the underlying collateral quality. This will increase capital efficiency and competitive positioning vs. alternative venues
Additionally, Ethena’s recent enhancements to USDe stress tooling and transparency provide incremental support that severe, venue-specific dislocations are less likely to persist as fundamental impairment, complementing our oracle controls rather than replacing them.
Liquidation Incentive Decrease (→ 4%)
In the sUSDe-DOLA and yv-sUSDe-DOLA FiRM markets, we’ve observed successful liquidations at meaningful scale (4 liquidation events spanning Dec 2024–Nov 2025), including a large single liquidation with ~336.7k repaid debt and ~462.1k total repaid. Liquidations were executed across four distinct liquidators, suggesting liquidation capacity is not reliant on a single actor and has been effective even for larger position sizes. This observed liquidation performance supports reducing the liquidation incentive from 5% to 4%, particularly given these markets skew toward larger, more liquidatable positions.
Minimum Debt Increase (→ 5000 DOLA)
We propose increasing the minimum borrow size from 3,000 DOLA to 5,000 DOLA to preserve liquidation efficiency alongside the reduction in liquidation incentive from 5% to 4%. Liquidations carry a relatively fixed execution cost that becomes materially more punitive during stressed markets. In a scenario that drives persistent USDe/sUSDe dislocation or peg impairment, we would also expect a sharp increase in on-chain activity (risk-off flows, arbitrage, liquidations), which typically elevates gas costs and further compresses liquidator margins. A higher minimum debt improves the likelihood that each liquidation remains economically viable and therefore reliably executed by third-party liquidators, even under congestion.
This adjustment is also consistent with observed usage in the sUSDe–DOLA and yv-sUSDe–DOLA markets, where borrower positions are predominantly larger. Raising the minimum debt primarily reduces the long-tail of small borrows that are least attractive to liquidate under elevated gas and a reduced incentive, while having minimal impact on the typical borrower profile in these markets. As a result, this change improves expected liquidation completeness during adverse conditions by avoiding the lowest-notional positions that are most likely to become uneconomic to clear.
Set Oracle Price Feeds
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sUSDe-DOLA CLP feed : 0xe741c804Ca2e26a0aa5511a6018119CD6991Aaa5
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sUSDe-DOLA Yearn feed: 0x2dc3ceb337a7b62831f4f27688aacfbb9b4c0afa