Ethena Labs, the developer behind USDe, has introduced Bitcoin as collateral for its synthetic products pegged to the U.S. dollar, aiming to substantially increase its current $2 billion supply. This strategic move is motivated by the significant growth in Bitcoin open interest on major cryptocurrency exchanges, which has surged from $10 billion to $25 million in the past year. With this addition, Ethena anticipates expanding USDe's capacity by 2.5 times.
USDe, launched on the Ethereum network on February 19th, initially offered an attractive annualized rate of return (APY) of 27.6% for staking USDe. However, concerns arose within the community due to the high APY, which peaked at 113% on March 5 before gradually decreasing to 7.15%. Ethena employs a delta hedging strategy in the derivatives market to uphold USDe's peg, mitigating risks associated with collateral fluctuations.
Prior to the inclusion of Bitcoin, USDe was backed by ETH, Tether, and Ethereum-based liquid staked tokens, constituting 45%, 38%, and 17% of its collateral, respectively. The majority of this collateral is sourced from prominent exchanges such as Binance, Bybit, and OKX, accounting for 59%, 15%, and 20% of the total, respectively, while Deribit, Bitget, and BitMEX contribute the remaining 6%.
Acknowledging that Bitcoin lacks native staking rewards comparable to Ethereum, Ethena emphasized the significance of leveraging market dynamics, particularly during bull markets where funding rates can surpass 30%. Despite potentially lower staking yields for Bitcoin, Ethena believes its impact is mitigated by favorable market conditions. The overarching goal is to differentiate USDe from traditional stablecoins by reducing reliance on the conventional banking system, if not eliminating it altogether.
USDe currently ranks as the fifth-largest U.S. dollar-denominated product by market capitalization, according to CoinGecko, trailing behind industry heavyweights like USDT, USDC, and FDUSD. With its innovative approach to collateralization and strategic expansion, USDe aims to carve out a distinct niche within the cryptocurrency ecosystem.
