Ethena Labs, the creators of USDe, have integrated Bitcoin (BTC) as a hedge into their synthetic dollar-pegged offering.
This move aims to increase USDe’s supply from the current $2 billion mark.
BTC to increase scalability and liquidity
The announcement appeared in a thread on April 4th
Ethena Labs highlighted BTC's role in improving USDe's scalability, citing its growing open interest on major exchanges. Over the past year, open interest in BTC has increased from $10 billion to $25 billion, outpacing the growth of Ethereum (ETH) derivatives.
The team recognized BTC's superior liquidity and scalability for delta hedging, which provides a safer environment for USDe users. Historical data also shows BTC’s resilience in bear markets, outperforming ETH in terms of funding returns.
Ethena also acknowledged that BTC lacks an inherent staking return similar to that of staked Ether. However, the team found that staking returns between 3 and 4% are comparatively less effective in bullish market conditions, where funding rates can exceed 30%.
Ethena uses a delta hedging approach in the derivatives market to maintain USDe peg. This involves potentially holding short positions in Ether or ETH-related derivatives that will yield profits if the value of the asset declines. This allows Ethena to mitigate most of the downward swings in USDe collateral.
USDe history
USDe launched on the Ethereum blockchain on February 19, with Ethena initially offering a 27.6% annual percentage return (APY) on USDe staked.
Although the yield peaked at 113% APY on March 5, it has since fallen to 7.15%. Prior to the integration of BTC, USDe was primarily backed by ETH, Tether (USDT), and Ether-based liquid stake tokens in proportions of 45%, 38%, and 17%, respectively.
The majority of collateral comes from Binance, ByBit and OKX, namely 59%, 15% and 20% respectively, while the remaining 6% comes from Deribit, Bitget and BitMEX.
According to CoinGecko data, USDe ranks fifth in terms of market capitalization among US dollar-backed products, after USDT, USD Coin (USDC), Dai (DAI) and First Digital USD (FDUSD).
By integrating BTC, Ethena Labs aims to strengthen support for USDe and ultimately provide its users with a more secure and reliable product. The move is also in line with the company’s vision for the second season of the Sats campaign, which focuses on expanding BTC integration.
Starting April 5, users will have transparent access to BTC backing positions through Ethereum’s dashboards.
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