Ethena Labs to Scale USDe Stablecoin with Bitcoin Backing

Bitcoin Ethena

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Hongji Feng

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Hongji Feng

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Hongji is a crypto and tech reporter. He graduated from Northwestern University's Medill School of Journalism with a Bachelor's and a Master's. He has previously interned at HTX (Huobi Global),...

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April 5, 2024

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Ethena Labs has announced plans to scale the USDe stablecoin by adding Bitcoin as an additional backing asset.

In their latest social media posts, Ethena shared that integrating Bitcoin as a backing asset aims to increase USDe’s current stability of $2 billion. This update seeks to leverage Bitcoin‘s liquidity to enhance the stablecoin’s existing framework.

The announcement suggested that following USDe’s significant expansion since its inception, Ethena’s hedges now account for approximately 20% of Ethereum’s open interest.

Ethena Labs Explains Bitcoin’s Benefits

“With $25bn of BTC open interest readily available for Ethena to delta hedge, the capacity for USDe to scale has increased >2.5x,” said Ethena Labs.

“In just 1 year, BTC open interest on major exchanges (exc. CME) has grown from $10bn to $25bn, while ETH OI has grown from $5 to $10bn,” said Ethena Labs.

The announcement also elaborated that Bitcoin derivative markets outpace Ethereum‘s in growth, providing enhanced scalability and liquidity for delta hedging.

BTC also provides a better liquidity and duration profile vs liquid staking tokens

As Ethene scales closer towards $10bn this provides a more robust backing, and ultimately a safer product for users

— Ethena Labs (@ethena_labs) April 4, 2024

“As Ethene scales closer towards $10bn this provides a more robust backing, and ultimately a safer product for users,” the post reads.

Regarding the potential shortcomings of backing USDe with Bitcoin, the company stated that even if Bitcoin “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%.”

Therefore, according to Ethena Labs, the current market is “ideal for optimizing for the scalability of USDe.”

MakerDAO Proposes $600 Million Investment in USDe

MakerDAO

recently proposed to channel $600 million in DAI into the USDe and its staked variant, sUSDe, via Morpho Labs. his move aims to leverage Morpho Labs’ lending capabilities, supporting the diversification of MakerDAO’s investments.

According to MonetSupply from Block Analitica, the decision reflects user preferences for certain DeFi products and leverages, with a notable inclination towards USDe over sUSDe to reduce liquidity risks and augment Ethena’s insurance fund.

The recommendation proposes a $600 million investment cap initially, with a potential increase to $1 billion.