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Ethena Labs adds Bitcoin as backing asset for USDe

Published

3 weeks ago

April 5, 2024

Ethena Labs has incorporated Bitcoin as a backing asset for its USDe synthetic dollar to help fortify the USDe synthetic dollar.

According to Ethena, broadening the range of assets supporting the protocol is expected to boost USDe by more than 2.5 times, nearing the $10 billion milestone.

Ethena is a synthetic dollar protocol and internet-native yield project built on Ethereum. Its main offering is the synthetic dollar, USDe is designed to be a scalable, stable, and censorship-resistant alternative to traditional banking systems.

https://x.com/ethena_labs/status/1775944410011926931

Through Ethena, users can mint and redeem USDe tokens, backed by staked Ethereum (stETH) and other assets.

The protocol utilizes advanced financial mechanisms like delta hedging to maintain USDe’s peg to the dollar, ensuring stability and trust in the system.

Users can interact with the platform through a user-friendly interface or API, which enables easier transactions and access to Ethena’s innovative financial solutions.

Before this announcement, USDe had primarily relied on Ether liquid staking tokens as its backing assets. However, the increasing demand for trading Bitcoin has prompted the protocol to diversify its asset portfolio.

Despite the plans of Ethena towards further developing the USDe project, the co-founder of Fantom Foundation, Andre Cronje shared concerns on how USDe may end up like TerraUST because he believes they operate using the same principles.

The concerns around Ethena becoming like TerraUST stem from the similarities between their strategies and the potential risks involved.

Both Ethena’s USDe and TerraUST are synthetic stablecoins that generate yield by shorting ether futures and staking ether.

However, Ethena’s founder, Guy Young, has emphasized that Ethena’s design will likely put downward pressure on funding rates, unlike TerraUST, which was dependent on perpetual capital inflows to prevent a death spiral.