The synthetic stablecoin protocol Ethena announced yesterday (4th) that it will include Bitcoin as a reserve asset for USDe in response to unprecedented growth since the launch of USDe. With the expansion of the USDe scale, the existing open interest contracts on Ethereum may no longer be sufficient to meet Ethena’s hedging needs. After introducing Bitcoin, Ethena claims that the potential scale of USDe can increase by more than 2.5 times.
(Summary:
Andre Cronje’s long article questions Ethena (USDe): Is the next UST a death spiral?)
(Background:
Pledge Bomb! Synthetic stablecoin USDe with an annualized rate of nearly 200%, how to earn Ethena income?)
Ethena, the synthetic stablecoin protocol, issues the USDe stablecoin with its “Delta Neutral” mechanism. The original composition of this mechanism is based on equivalent spot ETH and ETH futures short positions, which hedge to become a “Delta Neutral” stable asset. However, due to the unprecedented growth of USDe, which now has a market value of over 2 billion US dollars, Ethena officially announced yesterday (4th) that it will include Bitcoin as a reserve asset for USDe to support further expansion of USDe.
Reasons for including Bitcoin
Ethena pointed out that so far, the hedging transactions conducted by Ethena have accounted for one-fifth of the value of all open interest contracts (OI) on Ethereum in the current market. With the continuous expansion of USDe scale, the existing open interest contracts on the market may not be sufficient to meet Ethena’s hedging needs. Therefore, introducing Bitcoin as a reserve asset has become a crucial decision. Ethena stated that there are 25 billion US dollars worth of open interest contracts for Bitcoin available for Ethena to conduct delta hedging, which enables the potential scale of USDe to expand by more than 2.5 times.
In the past year, the open interest contracts for Bitcoin on major exchanges (excluding CME) have increased by 150%, reaching 25 billion US dollars, while the growth rate of Ethereum is 100%, and the open interest contracts have reached 10 billion US dollars. Regarding this, Ethena stated:
In addition, Ethena also mentioned that compared to Ethereum’s liquidity staking tokens, Bitcoin has greater advantages in terms of liquidity and term characteristics.
Will the lack of Bitcoin staking income affect USDe APY?
Originally, the income of USDe mainly came from “Ethereum PoS staking income” and “funding rates held by contract short positions.” However, since Bitcoin does not have native staking income like staking ETH, this change may have an impact on the income of USDe. However, Ethena pointed out that during a bull market, when the funding rate exceeds 30%, the actual impact of a 3-4% staking income is limited, and the current market conditions are extremely suitable for increasing the scale and scalability of USDe.
According to Ethena’s statistics, in 2021, the funding rates for Bitcoin were comparable to Ethereum, but in the bear market in 2022, the funding rate income 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 composition of USDe through Ethena’s official website. Although Bitcoin has not been displayed as included yet, the collateral assets already include USDT worth 736 million US dollars and ETH worth 870 million US dollars, accounting for 38% and 44% of the total value of all collateral assets of USDe, respectively.
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Comparison table of Bitcoin and Ethereum funding rates
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