Ethena Labs Adds Bitcoin Backing to its Synthetic Dollar-pegged USDe

Ethena Labs, the creators of USDe, have incorporated Bitcoin (BTC) as backing into their synthetic dollar-pegged offering.

This move aims to scale USDe’s supply from its current $2 billion mark.

BTC to Boost Scalability and Liquidity

The announcement, made through an April 4 thread on X, highlighted the strategic importance of incorporating BTC as a backing asset.

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 Labs emphasized BTC’s role in enhancing USDe’s scalability, citing its expanding open interest in major exchanges. Over the past year, BTC’s open interest has surged from $10 billion to $25 billion, outpacing the growth of Ethereum (ETH) derivatives.

BTC also provides a better liquidity and duration profile vs liquid staking tokens

As Ethene scales closer towards $10bn this provides a more robust backing, and ultimately a safer product for users

— Ethena Labs (@ethena_labs) April 4, 2024

The team recognized BTC’s superior liquidity and scalability for delta hedging, offering a more secure environment for USDe users. Historical data also shows BTC’s resilience during bear markets, outperforming ETH in terms of funding yields.

Ethena also acknowledged that BTC lacks an inherent staking yield similar to that of staked Ether. However, the team noted that staking yields ranging from 3-4% are comparatively less impactful during bullish market conditions, where funding rates can surpass 30%.

Ethena uses a delta hedging approach within the derivatives market to maintain USDe’s peg. This involves potentially holding short positions in Ether or ETH-related derivatives, which yield gains if the asset’s value decreases. As a result, Ethena can mitigate most of the downward fluctuations in USDe’s collateral.

USDe’s History

USDe was launched on the Ethereum blockchain on February 19, with Ethena initially offering a 27.6% annual percentage yield (APY) on staked USDe.

Despite peaking at 113% APY on March 5, the yield has since dropped to 7.15%. Before the integration of BTC, USDe was primarily backed by ETH, Tether (USDT), and Ether-based liquid staking tokens in proportions of 45%, 38%, and 17%, respectively.

Most of its collateral is sourced from Binance, ByBit, and OKX, comprising 59%, 15%, and 20%, respectively, with the remaining 6% sourced from Deribit, Bitget, and BitMEX.

According to CoinGecko data, USDe ranks fifth in market capitalization among U.S. dollar-backed products, following USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD).

With the integration of BTC, Ethena Labs aims to strengthen USDe’s backing, ultimately providing a safer and more reliable product for its users. The move also aligns with the company’s vision for the second season of the Sats Campaign, which is focused on expanding BTC integration.

As of April 5, users will have transparent access to BTC backing positions through Ethena’s dashboards.