Key Takeaways:
- Ethena is enhancing USDe stability and yield by shorting ETH futures and has now expanded its strategy to include bitcoin, employing a cash-and-carry trade to safeguard USDe’s value.
- With the addition of bitcoin, Ethena aims to increase the safety, stability, and issuance capacity of USDe, leveraging the more liquid BTC derivative markets for scalability and liquidity.
- Ethena’s operational model involves users depositing stablecoins, which are converted into USDe for staking, utilizing a futures mechanism to maintain USDe’s value and generate funding yield through holding and shorting bitcoin.
Ethena is leveraging a sophisticated strategy involving bitcoin to enhance the stability and yield of its USDe tokens. Here’s how they’re doing it:
Since its introduction, Ethena has been engaging in the practice of shorting ether (ETH) futures and capturing funding rates as a means to generate returns on its USDe tokens, a synthetic dollar designed to always be worth $1.
Excited to announce that Ethena has onboarded BTC as a backing asset to USDe
— Ethena Labs (@ethena_labs) April 4, 2024
This is a crucial unlock which will enable USDe to scale significantly from the current $2bn supply pic.twitter.com/FOZRWBrVZV
To date, this approach has been quite successful, with more than $2 billion in USDe issued and a continuously growing demand.
In a significant strategic shift, Ethena Labs is set to extend its methodology to include bitcoin (BTC), employing a cash-and-carry trade technique.
This involves buying bitcoin while simultaneously shorting bitcoin futures, a move aimed at both safeguarding the value of USDe and potentially increasing its yield for holders.
While BTC does not possess a native staking yield like staked ETH, staking yields of 3-4% are less significant in a bull market when funding rates are >30%
— Ethena Labs (@ethena_labs) April 4, 2024
The current environment is ideal for optimizing for the scalability of USDe pic.twitter.com/0AwrfL85ry
This strategy is not without its critics, but the anticipated benefits have continued to attract interest.
Adding bitcoin into the mix is expected not only to enhance the safety and stability of USDe but also to significantly expand its issuance capacity.
According to Ethena developers, the platform’s hedges currently account for about 20% of ETH open interest.
With $25 billion of BTC open interest available for similar strategies, Ethena’s capacity to scale its operations could grow more than twofold.
Ethena Labs adds bitcoin as USDe backing asset https://t.co/FTaewykCrf
— The Block (@TheBlock__) April 4, 2024
The developers highlight the expanding and more liquid BTC derivative markets as advantageous for scalability and liquidity, which in turn promises a more robust and secure product for users.
Ethena’s operational model allows users to deposit various stablecoins, which can then be converted into USDe for staking.
This process includes a futures mechanism akin to a cash and carry trade, where profitability comes from funding payouts rather than asset price movements.
As of tomorrow the BTC backing positions will be transparently reflected in the dashboards:https://t.co/EtsecdCYaU
— Ethena Labs (@ethena_labs) April 4, 2024
Essentially, users mint USDe by depositing funds (e.g., $10 million in tether), which Ethena then exchanges for BTC.
To counteract bitcoin’s price volatility and stabilize USDe value, Ethena shorts an equivalent amount in BTC futures.
This method not only maintains the value of USDe but also generates funding yield, benefitting USDe holders.
🆕 Check out today's top #crypto news on #KuCoinMarketWatch ⤵️
— KuCoin (@kucoincom) April 5, 2024
🟢 Morgan Stanley & UBS to add #BitcoinETFs next week
🟢 Ethena $USDe, now 5th largest stablecoin, adds #Bitcoin as backing asset
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Which story caught your attention?
Through this dual approach of holding and shorting bitcoin, Ethena aims to offer a more stable and potentially more lucrative USDe, aligning with its goal of creating a safer and more scalable synthetic dollar product amidst the dynamic and evolving landscape of cryptocurrency markets.
About The Author
Victor Fawole, a seasoned Web3 content creator and social media influencer, excels in bringing the pulse of the crypto world to our readers.
With a keen eye for emerging trends and a talent for engaging storytelling, Victor’s articles offer a fresh perspective on the ever-evolving digital currency landscape.
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