The Integration of Bitcoin (BTC) into USDe by Ethena Labs

Ethena Labs recently announced the incorporation of Bitcoin (BTC) as backing into their synthetic dollar-pegged offering, USDe. This strategic move aims to scale USDe’s supply beyond its current $2 billion mark. By highlighting the importance of BTC as a backing asset, Ethena Labs is looking to leverage BTC’s superior liquidity and scalability for delta hedging to create a more secure environment for USDe users.

The team at Ethena emphasized BTC’s track record of resilience during bear markets, outperforming Ethereum (ETH) in terms of funding yields. With BTC’s open interest surging from $10 billion to $25 billion over the past year, it has shown consistent growth in major exchanges. This growth has outpaced ETH derivatives, making BTC a favorable choice for bolstering USDe’s stability and scalability.

Ethena uses a delta hedging approach within the derivatives market to maintain USDe’s peg. This involves holding short positions in Ether or ETH-related derivatives, which can yield gains if the asset’s value decreases. By diversifying its backing assets to include BTC, Ethena can mitigate most of the downward fluctuations in USDe’s collateral, providing a more reliable product for its users.

USDe, launched on the Ethereum blockchain on February 19, initially offered a high annual percentage yield (APY) on staked USDe. Despite fluctuations in APY, USDe ranks fifth in market capitalization among U.S. dollar-backed products, following USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD). With the integration of BTC, Ethena Labs aims to solidify USDe’s backing and enhance its position in the market.

The integration of BTC into USDe aligns with Ethena Labs’ vision for the second season of the Sats Campaign, which focuses on expanding BTC integration. Users can now transparently access BTC backing positions through Ethena’s dashboards, ensuring accountability and trust within the ecosystem. This move not only strengthens USDe’s position but also sets a precedent for future innovations in the synthetic assets space.