The Synthetic USD Stablecoin Protocol, Ethena, announced yesterday that it will include Bitcoin as a reserve asset for USDe to address its unprecedented growth since its launch. With the expansion of USDe, the existing open interest (OI) of Ethereum may no longer be sufficient to meet Ethena’s hedging needs. By introducing Bitcoin, Ethena claims that the potential scale of USDe can expand by more than 2.5 times.
Ethena, with its “Delta Neutral” mechanism, issues the USD stablecoin USDe, with its composition originally based on equivalent spot ETH and ETH futures short positions, hedging them into a “Delta Neutral” stable asset. However, due to the unprecedented growth of USDe, with a current market value of over $2 billion, Ethena officially announced the inclusion of Bitcoin as a reserve asset for USDe to support further expansion.
Reasons for including Bitcoin
Ethena stated that its hedging transactions have accounted for one-fifth of the total value of Ethereum open interest contracts in the current market. With the continuous expansion of USDe, the existing open interest of Ethereum in the market may not be sufficient to meet Ethena’s hedging operations. Therefore, the decision to include Bitcoin as a reserve asset has become crucial. Ethena stated that there are $25 billion worth of open interest contracts for Bitcoin available for delta hedging, which allows the potential scale of USDe to expand by more than 2.5 times.
In the past year, the open interest of Bitcoin on major exchanges (excluding CME) has increased by 150%, reaching $25 billion, while the growth rate of Ethereum is 100%, with open interest reaching $10 billion. Regarding this, Ethena stated:
Furthermore, Ethena mentioned that compared to Ethereum liquidity staked tokens, Bitcoin has greater advantages in liquidity and term characteristics.
Will the lack of staking rewards for Bitcoin affect USDe’s APY?
Originally, the income of USDe mainly came from “Ethereum PoS staking rewards” and “funding rates held by short positions in contracts.” However, since Bitcoin does not have native staking rewards like staking ETH, this change may affect the income of USDe. However, Ethena pointed out that during a bull market, when the funding rate exceeds 30%, the impact of a 3-4% staking reward is limited, and the current market conditions are highly suitable for increasing the scale and scalability of USDe.
According to Ethena’s statistics, in 2021, the funding rates for Bitcoin and Ethereum are comparable, but in the bear market of 2022, the funding rate for Bitcoin exceeded Ethereum, with 2% and 0% respectively. During a bull market, the funding rate for Ethereum often surpasses Bitcoin.
Currently, users can view the collateral asset portfolio of USDe through Ethena’s official website. Although Bitcoin has not been shown to be included yet, the collateral assets already include $736 million worth of USDT and $870 million worth of ETH, accounting for 38% and 44% of the total value of all collateral assets of USDe.
Comparison of funding rates for Bitcoin and Ethereum
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