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Bitcoin on Board: New Crypto Collateral For Ethena Labs’s USDe

With scaling in mind: Ethena Labs backs USDe with Bitcoin 

Following the successful airdrop campaign, Ethena Labs, the up-and-coming blockchain project behind the synthetic dollar-pegged product USDe, has taken a step forward by introducing Bitcoin (BTC) as collateral. This move is aimed to elevate the scalability and liquidity of USDe, potentially amplifying its current $2 billion supply.

Highlighting the surging open interest in Bitcoin derivative markets, which has increased from $10 billion to $25 million over the past year on major cryptocurrency exchanges, Ethena envisions USDe scaling by a remarkable factor of 2.5. This strategic decision was communicated through an April 4 post on X.

USDe, which made its debut on Ethereum on Feb. 19, initially allured investors with a promising 27.6% annual percentage yield (APY) on staked USDe. However, community concerns arose as the APY peaked at 113% on March 5, subsequently tapering down to 7.15%.

Emphasizing the virtues of integrating Bitcoin as collateral, Ethena underscored the enhanced liquidity and security it offers USDe token holders.

USDe aims to reduce reliance on traditional banking system

Ethena employs a delta hedging strategy in the derivatives market to safeguard USDe's peg. This strategic maneuver allows Ethena to offset potential downward volatility from USDe's collateral to a significant extent.

Before the incorporation of Bitcoin, USDe's collateral composition comprised Ether (ETH), Tether (USDT), and Ether-based liquid staking tokens in varying proportions. Ethena predominantly sources its collateral from leading exchanges such as Binance, ByBit, and OKX.

Acknowledging Bitcoin's lack of a native staking yield, Ethena underscored that staking yields of 3-4% hold diminished significance during bullish market phases, where funding rates can surpass 30%. The objective is to differentiate USDe from stablecoins by reducing dependency on the traditional banking system.

Presently, USDe stands as the fifth-largest market cap among United States dollar-denominated products, a testament to its significance in the cryptocurrency landscape.