Ethena Labs has enlisted bitcoin as a backing asset for USDe to enhance scalability.
Takeaway Points
- Ethena Labs has enlisted Bitcoin as a backing asset for USDe
- The aim of enlisting Bitcoin as its backing asset is to enable USDe to scale significantly from the current $2 billion.
- BTC funding outperformed ETH during the 2022 bear market, where BTC yields were ~2% vs. ETH yields of ~0%.
Bitcoin as a Backing Asset
Ethena Labs, the decentralized finance (DeFi) protocol behind the USDe synthetic dollar, announced on Thursday the enlistment of Bitcoin as its backing asset for its stablecoin. The aim of enlisting Bitcoin as its backing asset is to enable USDe to scale significantly from the current $2 billion.
“Excited to announce that Ethena has onboarded BTC as a backing asset to USDe. This is a crucial unlock which will enable USDe to scale significantly from the current $2bn supply,” Ethena said.
The decision to enlist Bitcoin as a backing asset comes as Bitcoin derivative markets outpace their Ether-based counterparts. According to data quoted by Ethena, BTC funding has also mirrored ETH since 2021. Interestingly, BTC funding outperformed ETH during the 2022 bear market, where BTC yields were ~2% vs. ETH yields of ~0%. In bull markets, ETH funding tends to outperform BTC.
Reasons why Ethena chose Bitcoin as a backing asset
Ethena explained that while BTC does not have a native staking yield like staked ETH, staking yields of 3-4% are irrelevant in a bull market when funding rates are >30%. The current environment is ideal for optimizing for the scalability of USDe.
In just 1 year, BTC open interest on major exchanges (exc. CME) has grown from $10 billion to $25 billion, while ETH OI has grown from $5 to $10bn. BTC derivative markets are growing at a faster pace than ETH and offer better scalability and liquidity for delta hedging.
The DeFi protocol also said that “BTC also provides a better liquidity and duration profile vs liquid staking tokens. As Ethene scales closer towards $10bn this provides a more robust backing, and ultimately a safer product for users. With $25bn of BTC open interest readily available for Ethena to delta hedge, the capacity for USDe to scale has increased >2.5x.”
What is Decentralized Finance?
Decentralized Finance (DeFi) is a general name for financial products and services that are available to anyone who has an internet connection or who can use Ethereum. With DeFi, there is no centralization; no centralized or single authority can block payments or deny you access to anything.
The difference between DeFi and traditional finance includes: in DeFi, your money is held by you, whereas in traditional finance, your money is held by companies. You control where your money goes and how it’s spent in DeFi, but in traditional finance, you have to trust companies not to mismanage your money, like lending to risky borrowers.
In DeFi, transactions are very fast because transfers of funds happen in minutes, but in traditional finance, payments can take days due to manual processes. DeFi markets are always open, and it’s built on transparency—anyone can look at a product’s data and inspect how the system works.
