Ethena Labs Expands USDe with Bitcoin Collateral, Targeting Vast Market Growth

Ethena Labs, driving force behind USDe, has implemented Bitcoin (BTC) as collateral for its artificial dollar-pegged product, aiming to vastly expand its $2 billion supply. With Bitcoin demand surging on major exchanges, USDe has the potential to scale by a factor of 2.5, positioning it as a robust and scalable product for token holders.

Ethena Labs Integrates Bitcoin as Collateral for USDe, Targeting Significant Expansion

Ethena Labs, the driving force behind the US dollar-pegged artificial asset USDe, has strategically incorporated Bitcoin (BTC) as collateral to fuel its growth trajectory. The move aims to bolster the project's scalability and enhance its stability, targeting a substantial increase from its current supply of $2 billion.

With Bitcoin's open interest surging from $10 billion to $25 million over the past calendar year on major cryptocurrency exchanges, Ethena recognizes the immense potential to scale USDe by a factor of 2.5. This integration marks a pivotal moment in the project's evolution, poised to unlock significant growth opportunities.

USDe went live on the Ethereum network on February 19, 2024. At its inception, Ethena promised an attractive 27.6% annual percentage yield (APY) on staked USDe, raising eyebrows within the crypto community. The APY peaked at an impressive 113% on March 5 but has since stabilized at a more sustainable 7.15%.

"This is a game-changing development that will enable USDe to scale substantially from its current $2 billion supply," exclaimed Ethena Labs in an April 4 announcement.

Ethena meticulously selected Bitcoin as collateral due to its superior liquidity and inherent stability, offering USDe token holders a more secure and robust product. The company explained, "BTC spinoff markets are growing at a faster pace than ETH and offer significantly better scalability and liquidity for delta hedging."

Ethena employs a sophisticated delta hedging strategy in the derivatives market to maintain USDe's peg with the US dollar. When Ether's price falls, Ethena's positions in Ether derivatives generate profits, offsetting any downward volatility in USDe's collateral.

Prior to the Bitcoin addition, USDe was backed by a combination of Ether (ETH), Tether (USDT), and Ether-based liquid staking tokens in proportions of 45%, 38%, and 17%, respectively. The company sources the majority of its collateral from industry-leading exchanges, including Binance (59%), ByBit (15%), and OKX (20%). Deribit, Bitget, and BitMEX contribute the remaining 6%.

Ethena acknowledges that Bitcoin lacks a native staking yield like staked Ether, but the reported staking yields of 3-4% are considered "less significant" in bullish market environments where funding fees can exceed 30%.

Ethena is actively expanding its team, onboarding experienced professionals in quantitative finance, banking, and blockchain technology. The company is determined to distinguish USDe from traditional stablecoins by reducing or eliminating reliance on the conventional banking system.

Currently, USDe ranks as the fifth-largest US dollar-denominated cryptocurrency by market capitalization, according to CoinGecko. Its $2 billion market cap trails only USDT, USD Coin (USDC), Dai (DAI), and First Digital USD (FDUSD).

The addition of Bitcoin as collateral underscores Ethena's commitment to innovation and stability. With the crypto market poised for a new growth cycle, Ethena is well-positioned to leverage its enhanced product offering to capture a significant market share. The project's ambitious expansion plans and robust technical capabilities position it as a formidable player in the rapidly evolving world of synthetic assets.