Ethena Labs Integrates Bitcoin Support to Enhance USDe Synthetic Dollar’s Stability

Ethena Labs, the developer behind USDe, has fortified its synthetic dollar-pegged product by incorporating Bitcoin (BTC) as collateral, aiming to significantly expand its current $2 billion supply.

In a recent announcement on X, Ethena elucidated that with Bitcoin’s open interest surging from $10 billion to $25 million on major crypto exchanges in the past year, the USDe platform could potentially upscale its operations by 2.5 times.

USDe, launched on the Ethereum network on February 19, initially boasted a 27.6% annual percentage yield (APY) for staked USDe, sparking widespread community interest. Although USDe’s APY reached a peak of 113% on March 5, it has since stabilized at 7.15%.

Ethena emphasized that the inclusion of Bitcoin as collateral not only enhances liquidity but also ensures a more secure and robust product for USDe token holders.

The rationale behind integrating Bitcoin lies in its burgeoning derivative markets, which offer superior scalability and liquidity for delta hedging compared to Ethereum.

Employing a delta hedging strategy in derivatives markets, Ethena mitigates USDe’s volatility risks by taking short positions in Ether or Ether-based derivatives. These positions prove advantageous when Ether’s price experiences a downturn, effectively offsetting potential fluctuations in USDe’s collateral.

Previously, USDe’s collateral comprised Ether (ETH), Tether (USDT), and Ether-based liquid staking tokens, with proportions of 45%, 38%, and 17%, respectively.

Ethena primarily sources its collateral from Binance, ByBit, and OKX, accounting for 59%, 15%, and 20% of the total, respectively. The remaining 6% is obtained from Deribit, Bitget, and BitMEX.

While Bitcoin does not inherently offer staking yields like Ether, Ethena contends that staking yields ranging from 3-4% are relatively less significant during bullish market cycles, where funding rates may surpass 30%.

Ethena’s initiative to integrate Bitcoin underscores its commitment to differentiate USDe from stablecoins by reducing reliance on traditional banking systems.

USDe presently holds the fifth position in terms of market capitalization among United States dollar-denominated products, trailing behind USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD), according to CoinGecko.