Bitcoin (BTC) has been added as collateral to Ethena Labs’ synthetic dollar-pegged product with the intention of scaling significantly from its current $2 billion supply. Over the past year, Bitcoin’s open interest increased from $10 billion to $25 billion on major crypto exchanges. According to Ethena’s April 4 post on X, USDe can scale by a factor of 2.5 if backed by Bitcoin.
Why Bitcoin?
On February 19, USDe went live on Ethereum. There were widespread concerns in the community at the time because Ethena promised a 27.6% annual percentage yield (APY) on staked USDe. On March 5, USDe’s APY peaked at 113% but it has fallen to 7.15% since then.
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.”
To maintain USDe’s peg, Ethena employs a delta hedging strategy in the derivatives market.
Ethena may, for example, hold short positions in Ether or Ether-based derivatives, which are rewarding when Ether’s price falls. Thus, Ethena is able to offset USDe’s collateral volatility to a significant extent.
USDe was backed by Ether (ETH), Tether (USDT) and Ether-based liquid staking tokens in proportions of 45%, 38% and 17% prior to the addition of Bitcoin.
In proportions of 59%, 15%, and 20%, Binance, ByBit, and OKX provide the firm with the majority of its collateral. Deribit, Bitget and BitMEX make up the remaining 6%.
Despite the fact that Bitcoin does not have a native staking yield, Ethena says staking yields of 3-4% are “less significant” during bull markets when funding rates exceed 30%.
As part of its strategy to differentiate from stablecoins, Ethena wants to eliminate or reduce reliance on traditional banks.
USDe is currently ranked fifth among United States dollar-denominated products, according to data from CoinGecko.
USDe was backed by ether tokens only
Ethena Labs’ website shows USDe was backed solely by ether liquid staking tokens until now. However, token holders are more interested in trading bitcoin.
In the past year, bitcoin open interest has surged 150% to $25 billion, doubling USDe’s capacity to scale, Ethena says. During the same period, ether’s open interest grew just 100% to $10 billion, according to protocol data.
A spectacular run-up in Bitcoin’s speculative value has contributed to Bitcoin’s comparatively strong demand. Bitcoin is trading at $67,931 at the time of writing, Coingecko data shows, up 3.2% over the past 24 hours. Whereas USDe is currently changing hands at $1 up 0.3% in the past day.
