Ethena Labs, the company 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 Bitcoin open interest on major cryptocurrency exchanges growing from $10 billion to $25 million in the past year, USDe has the potential to scale by a factor of 2.5, as explained by Ethena in a post on X on April 4.
USDe was launched on the Ethereum blockchain on February 19. Initially, Ethena promised a 27.6% annual percentage yield (APY) on staked USDe, which raised concerns within the community. However, the APY for USDe reached a peak of 113% on March 5 but has since declined to 7.15%.
Ethena stated that Bitcoin would provide better liquidity and a safer and more robust product for USDe token holders. The company adopts a delta hedging strategy in the derivatives market to maintain the peg of USDe. For instance, Ethena may have short positions in Ether (ETH) or Ether-based derivatives, which become profitable when the price of Ether falls. This allows Ethena to offset any downward volatility in USDe’s collateral to a significant extent.
Prior to 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 in proportions of 59%, 15%, and 20% respectively, while Deribit, Bitget, and BitMEX make up the remaining 6%.
Ethena acknowledged that Bitcoin does not offer a native staking yield like staked Ether, but stated that staking yields of 3% to 4% are less significant during bull markets where 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. Currently, USDe has the fifth-highest market capitalization among United States dollar-denominated products, according to CoinGecko, trailing only behind 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 continues to establish itself as a stable and reliable digital asset.