Ethena Labs, the team behind the USDe, has added Bitcoin (BTC) as collateral to its synthetic dollar-pegged product with the hopes of scaling “significantly” from its current $2 billion supply.
With Bitcoin open interest increasing from $10 billion to $25 million over the past year on major cryptocurrency exchanges, USDe has the capacity to scale by a factor of 2.5, Ethena explained in an April 4 post on X.
USDe went live on Ethereum on Feb. 19. At the time, Ethena promised a 27.6% annual percentage yield (APY) on staked USDe, prompting widespread concerns in the community. USDe’s APY topped out at 113% on March 5 but has since fallen to 7.15%.
Excited to announce that Ethena has onboarded BTC as a backing asset to USDe
This is a crucial unlock which will enable USDe to scale significantly from the current $2bn supply pic.twitter.com/FOZRWBrVZV
— Ethena Labs (@ethena_labs) April 4, 2024
Ethena said Bitcoin would provide better liquidity and offer a more “safe” and “robust” product for USDe token holders.
“BTC derivative markets are growing at a faster pace than ETH and offer better scalability and liquidity for delta hedging.”
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Source: Ethena Labs
Ethena adopts a delta hedging strategy in the derivatives market to maintain USDe’s peg.
For example, Ethena may have short positions in Ether or Ether-based derivatives, which become rewarding when Ether’s price falls. As a result, Ethena can offset any downward volatility from USDe’s collateral to a considerable degree.
Prior to the Bitcoin addition, USDe was backed by Ether (ETH), Tether (USDT) and Ether-based liquid staking tokens in proportions of 45%, 38% and 17%, respectively.
The firm sources the bulk of its collateral from Binance, ByBit and OKX in 59%, 15% and 20% proportions. Deribit, Bitget and BitMEX make up the remaining 6%.
Ethena acknowledged that Bitcoin doesn't possess a native staking yield like staked Ether, but said staking yields of 3-4% are “less significant” during bull markets where funding rates can exceed 30%.
Ethena is trying to differentiate its synthetic dollar product from stablecoins by eliminating, or significantly reducing reliance on the traditional banking system.
USDe currently boasts the fifth market cap among United States dollar-denominated products, according to CoinGecko.
Its $2 billion market cap only trails USDT, USD Coin (USDC), Dai (DAI) and First Digital USD (FDUSD).
