Ethena Labs, the team behind USDe, has integrated Bitcoin (BTC) as collateral into its synthetic dollar-pegged product in order to achieve significant growth from its current $2 billion supply. With the increasing open interest in Bitcoin on major cryptocurrency exchanges, which has risen 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. At the time, Ethena offered a 27.6% annual percentage yield (APY) on staked USDe, which raised concerns within the community. Although USDe’s APY reached a peak of 113% on March 5, it has since dropped to 7.15%.
Ethena stated that Bitcoin will provide better liquidity and a more secure and reliable product for USDe token holders. Ethena adopts 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. This allows Ethena to mitigate downward volatility from USDe’s collateral to a significant extent.
Before the addition of Bitcoin, USDe was backed by ETH, Tether (USDT), and Ether-based liquid staking tokens in proportions of 45%, 38%, and 17% respectively. The majority of the collateral is sourced from Binance, Bybit, and OKX, accounting for 59%, 15%, and 20% respectively. The remaining 6% comes from Deribit, Bitget, and BitMEX.
Ethena acknowledged that Bitcoin does not offer a native staking yield like staked Ether, but stated that staking yields of 3%-4% are less significant during bull markets when funding rates can exceed 30%.
By eliminating or significantly reducing reliance on the traditional banking system, Ethena aims to differentiate its synthetic dollar product from stablecoins. According to CoinGecko, USDe currently holds the fifth-highest market capitalization among United States dollar-denominated products. It is surpassed only by USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD).
In the face of risks such as depegging, bank runs, and other uncertainties, USDe strives to maintain stability and offer a reliable alternative to traditional stablecoins.