Ethena Labs Integrates Bitcoin as Collateral, Aims to Scale USDe from its $2bn Supply
Summary:
Ethena Labs, the team behind USDe, plans to use Bitcoin as collateral for its synthetic dollar-pegged product, aiming to significantly scale from its present $2 billion supply. The move is hoped to ensure better liquidity and offer a secure, robust product for USDe token holders. Ethena employs a delta hedging strategy, maintaining USDe’s peg through short positions in Ether or Ether-based derivatives. Previously backed by Ether, Tether and Ether-based tokens, the firm now seeks to differentiate its product by reducing reliance on the traditional banking system.
The creators of USDe, a synthetic dollar-pegged product, Ethena Labs, have decided to use Bitcoin (BTC) as collateral, looking forward to a substantial scaling from its existing $2 billion supply. With observed inflation in Bitcoin open interest from $10 billion to $25 million within a year on prime cryptocurrency exchanges, USDe is set to extend by a 2.5 multiplier, according to Ethena's April 4 update on X.USDe. USDe started functioning on Ethereum's blockchain on February 19. At its inception, Ethena guaranteed a yearly return of 27.6% on staked USDe, stirring concerns across its community. On March 5, the annual yield for USDe reached its peak at 113% but has since lowered to 7.15%.
Ethena declared their excitement about integrating BTC as an underlying asset for USDe via a tweet that also stated this strategic move would let USDe markedly upscale from the current $2 billion supply. In the opinion of Ethena, Bitcoin would ensure better liquidity and present a more secure and reliable product for USDe token owners, given that BTC derivative markets develop quicker than those of Ethereum (ETH), leading to improved scalability and liquidity for delta hedging.
To keep USDe’s peg stable, Ethena employs a delta hedging tactic in the derivatives market. This strategy often involves Ethena taking short stakes in Ether or Ether-derived derivatives. These stakes become lucrative when there is any decline in Ether's price, thus enabling Ethena to efficiently balance out any negative volatility in USDe's collateral.
Before integrating Bitcoin, USDe was supported by Ether (ETH), Tether (USDT) and Ether-derived liquid staking tokens at ratios of 45%, 38% and 17%, respectively. Binance, ByBit, and OKX are the primary suppliers of this collateral in 59%, 15%, and 20% shares, with Deribit, Bitget, and BitMEX contributing the remaining 6%. Although Bitcoin does not have a native staking yield like staked Ether, Ethena claims that 3-4% staking yields tend to be less crucial during bullish markets where funding rates may surpass 30%.
The aim of Ethena is to make its synthetic dollar product stand out from stablecoins by minimizing or drastically dropping dependence on the traditional financial system. Currently holding the fifth largest market cap among USD-based products, USDe's $2 billion market cap falls only behind USDT, USD Coin (USDC), Dai (DAI) and First Digital USD (FDUSD), as per CoinGecko's data.
Published At
4/5/2024 3:30:31 AM
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