Ethena Labs, the developer behind USDe, has integrated Bitcoin (BTC) as collateral for its synthetic dollar-pegged offering, aiming to substantially expand from its current $2 billion circulation.
The surge in Bitcoin open interest from $10 billion to $25 million on major crypto exchanges in the past year suggests a potential scaling opportunity of 2.5 times for USDe, according to Ethena’s announcement on April 4.
USDe debuted on Ethereum on Feb. 19, initially promising a 27.6% annual percentage yield (APY) for staked USDe. However, the high APY, which peaked at 113% on March 5, has since decreased 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 stated that incorporating Bitcoin would enhance liquidity and create a more secure and robust environment for USDe holders:
“BTC derivative markets are growing at a faster pace than ETH and offer better scalability and liquidity for delta hedging.”
In just 1 year, BTC open interest on major exchanges (exc. CME) has grown from $10bn to $25bn, while ETH OI has grown from $5 to $10bn
BTC derivative markets are growing at a faster pace than ETH and offer better scalability and liquidity for delta hedging pic.twitter.com/ToFowC6Tfw
— Ethena Labs (@ethena_labs) April 4, 2024
Ethena employs a delta hedging strategy in derivatives markets to sustain USDe’s peg, utilising short positions in Ether or Ether-based derivatives, which become profitable when Ether’s price declines. This approach helps mitigate downward volatility from USDe’s collateral.
Previously, USDe was supported by Ether (ETH), Tether (USDT), and Ether-based liquid staking tokens in proportions of 45%, 38%, and 17%, respectively.
The firm predominantly sources its collateral from Binance, ByBit, and OKX, with 59%, 15%, and 20% allocations, respectively, while Deribit, Bitget, and BitMEX account for the remaining 6%.
Although Bitcoin lacks a native staking yield like staked Ether, Ethena noted that staking yields of 3-4% are comparatively less impactful during bullish periods when funding rates can surpass 30%.
Ethena seeks to distinguish its synthetic dollar product from stablecoins by reducing reliance on traditional banking systems.
USDe currently ranks fifth in market capitalization among USD-denominated products, trailing behind USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD), according to CoinGecko.