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.”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%.
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