The Incorporation of Bitcoin as Backing for USDe by Ethena Labs

The Incorporation of Bitcoin as Backing for USDe by Ethena Labs

Ethena Labs, the creators of USDe, have recently announced the incorporation of Bitcoin (BTC) as backing into their synthetic dollar-pegged offering. This strategic move aims to scale USDe’s supply from its current $2 billion mark. The team at Ethena Labs emphasized BTC’s role in enhancing USDe’s scalability, pointing out its expanding open interest in major exchanges.

BTC has shown significant growth in open interest over the past year, surging from $10 billion to $25 billion. This growth outpaced the expansion of Ethereum (ETH) derivatives. The superior liquidity and scalability of BTC make it an ideal asset for delta hedging, providing a more secure environment for USDe users. Historical data also indicates BTC’s resilience during bear markets, with better performance in terms of funding yields compared to ETH.

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

USDe was initially launched on the Ethereum blockchain on February 19, offering a 27.6% annual percentage yield (APY) on staked USDe. Although the yield peaked at 113% APY on March 5, it has since dropped to 7.15%. Before the integration of BTC, USDe’s backing primarily consisted of ETH, Tether (USDT), and Ether-based liquid staking tokens in varying proportions.

According to CoinGecko data, USDe currently ranks fifth in market capitalization among U.S. dollar-backed products. The recent integration of BTC by Ethena Labs aims to strengthen USDe’s backing, providing a safer and more reliable product for its users. This move aligns with the company’s vision for the second season of the Sats Campaign, focusing on expanding BTC integration for USDe. Users now have transparent access to BTC backing positions through Ethena’s dashboards, further enhancing the platform’s credibility and reliability.

The incorporation of Bitcoin as backing for USDe by Ethena Labs represents a significant step towards enhancing the scalability, security, and reliability of the synthetic dollar-pegged offering. The strategic move to integrate BTC aligns with the company’s vision for future growth and expansion, providing users with a more robust and transparent platform for their financial transactions.

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