Ethena Labs, the creator of USDe, has integrated Bitcoin (BTC) as collateral into its synthetic dollar-pegged product, aiming to achieve significant scalability beyond its current $2 billion supply. The move comes amidst a surge in Bitcoin open interest from $10 billion to $25 million on major cryptocurrency exchanges over the past year, potentially allowing USDe to scale by a factor of 2.5, as detailed in an April 5 post on X.
Bitcoin open interest | Source: Ethena Labs
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Performance and Integration of Bitcoin with USDe
Upon its launch on Ethereum on Feb. 19, USDe, initiated by Ethena Labs, boasted a promised annual percentage yield (APY) of 27.6% on staked USDe, sparking concerns within the community. However, the APY surged to its peak at 113% on March 5, only to decline subsequently to 7.15%.
Ethena has now integrated Bitcoin into USDe, citing its potential to enhance liquidity and provide a more secure and robust product for USDe token holders.
USDe Collateral Composition and Market Position
Ethena utilizes a delta hedging approach in the derivatives market to uphold the peg of USDe. This involves maintaining short positions in assets like Ether or Ether-based derivatives, which become profitable during Ether price declines, helping offset downward volatility in USDe's collateral.
Before integrating Bitcoin, USDe was backed by Ether (ETH), Tether (USDT), and Ether-based liquid staking tokens in proportions of 45%, 38%, and 17%, respectively. The majority of its collateral is sourced from Binance, ByBit, and OKX, with proportions of 59%, 15%, and 20%, respectively. Deribit, Bitget, and BitMEX contribute the remaining 6%.
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While Bitcoin lacks a native staking yield like staked Ether, Ethena views staking yields of 3-4% as less significant during bullish markets when funding rates can surpass 30%. The firm aims to differentiate USDe from stablecoins by reducing reliance on the traditional banking system.
Source: CoinGecko
Currently, USDe ranks fifth among United States dollar-denominated products in terms of market capitalization, trailing only USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD), according to CoinGecko, with a $2 billion market cap.
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