Ethena Labs, the team behind USDe, has integrated Bitcoin (BTC) as collateral into its synthetic dollar-pegged product in order to achieve substantial growth from its current $2 billion supply.
With Bitcoin’s open interest on major cryptocurrency exchanges rising from $10 billion to $25 million in the past year, USDe has the potential to expand by a factor of 2.5, as explained by Ethena in a post on X on April 4.
USDe was launched on the Ethereum network on February 19. Initially, Ethena offered a 27.6% annual percentage yield (APY) on staked USDe, which raised concerns within the community. Although USDe’s APY peaked at 113% on March 5, it has since decreased to 7.15%.
Ethena stated that Bitcoin would enhance liquidity and provide a safer and more robust product for USDe token holders.
Ethena Labs employs a delta hedging strategy in the derivatives market to maintain the peg of USDe. For instance, Ethena may hold short positions in Ether (ETH) or Ether-based derivatives, which become profitable when the price of Ether decreases. Consequently, Ethena can mitigate a significant amount of downward volatility from USDe’s collateral.
Prior to the inclusion of Bitcoin, USDe’s backing consisted of ETH, Tether (USDT), and Ether-based liquid staking tokens in proportions of 45%, 38%, and 17% respectively.
The majority of Ethena’s collateral is sourced from Binance, Bybit, and OKX in proportions of 59%, 15%, and 20% respectively. Deribit, Bitget, and BitMEX make up the remaining 6%.
Ethena acknowledged that Bitcoin does not offer a native staking yield like staked Ether, but mentioned that staking yields of 3% to 4% are less significant during bull markets where funding rates can exceed 30%.
In an effort to distinguish its synthetic dollar product from stablecoins, Ethena aims to reduce or eliminate reliance on the traditional banking system.
According to CoinGecko, USDe currently holds the fifth-highest market capitalization among United States dollar-denominated products.
Its $2 billion market cap is surpassed only by USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD).
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