USDe is already enjoying backing from Ether, Ether-based liquid staking tokens and Tether, but Ethena Labs says Bitcoin will provide a more “safe” and “robust” product for USDe token holders.
Ethena Labs, the team behind 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.
After the unprecedented growth or USDe since launch, Ethena hedges represent ~20% of ETH open interest as of today
With $25bn of BTC open interest readily available for Ethena to delta hedge, the capacity for USDe to scale has increased >2.5x pic.twitter.com/glyvBQFEwj
— Ethena Labs (@ethena_labs) April 4, 2024
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.
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
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%.
Ethena said Bitcoin would provide better liquidity and offer a more “safe” and “robust” product for USDe token holders.
See Also: Ethena Labs Airdrop ENA Token, Top Recipient Received $1.96M Worth of ENA
“BTC derivative markets are growing at a faster pace than ETH and offer better scalability and liquidity for delta hedging.”
Ethena adopts a delta hedging strategy in the derivatives market to maintain USDe’s peg.
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
For example, Ethena may have short positions in Ether (ETH) 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 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, respectively. 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-highest market capitalization 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).
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