Ethena Labs, the creators of USDe, have taken a significant step in scaling USDe’s supply by incorporating Bitcoin (BTC) as backing into their synthetic dollar-pegged offering. The decision to include BTC as a backing asset was strategically important as it aimed to leverage BTC’s superior liquidity and scalability for delta hedging, ultimately providing a more secure environment for USDe users.
The team at Ethena Labs highlighted BTC’s performance during bear markets, showing that it has outperformed Ethereum (ETH) in terms of funding yields. Over the past year, BTC’s open interest has seen substantial growth, surpassing $25 billion, showcasing its expanding influence in major exchanges. Despite BTC lacking an inherent staking yield like staked Ether, Ethena recognized that during bullish market conditions, staking yields of 3-4% are less impactful compared to funding rates that can surpass 30%.
Ethena utilizes a delta hedging approach within the derivatives market to uphold USDe’s peg. This strategy involves potentially holding short positions in Ether or ETH-related derivatives, which generate gains if the asset value decreases. By implementing this method, Ethena can effectively mitigate most of the downward fluctuations in USDe’s collateral, ensuring stability for its users.
Prior to the integration of BTC, USDe was primarily backed by ETH, Tether (USDT), and Ether-based liquid staking tokens. The integration of BTC now adds a new dimension to USDe’s backing, strengthening its overall support and reliability. The shift in composition aligns with Ethena Labs’ vision for the second season of the Sats Campaign, emphasizing the expansion of BTC integration to enhance the product offering.
Market Capitalization and Competitive Positioning
USDe currently ranks fifth in market capitalization among U.S. dollar-backed products, following giants such as USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD). With the integration of BTC backing, Ethena Labs aims to solidify USDe’s position in the market, providing a safer and more robust product for its users. Users will now have transparent access to BTC backing positions through Ethena’s dashboards, ensuring visibility and accountability within the ecosystem.
Ethena Labs’ strategic decision to incorporate Bitcoin as backing for USDe marks a significant milestone in enhancing the scalability, reliability, and overall performance of the synthetic dollar-pegged offering. By leveraging BTC’s liquidity, resilience, and historical data, Ethena has positioned USDe for continued growth and success in the evolving cryptocurrency landscape.