Athena Labs adds Bitcoin support to the USDe synthetic dollar

Athena Labs, the group behind USDe, has added bitcoin (BTC) as collateral for its dollar-backed product, hoping to “significantly” increase its current supply of $2 billion.

Bitcoin open interest has increased from $10 billion to $25 million on major cryptocurrency exchanges last year, with USDe having the potential to weigh 2.5 times, Athena said on April 4 at X.

USDe was released on February 19 on Ethereum. At the time, Athena promised an annual percentage yield (APY) of 27.6% on its USDe holdings, causing widespread concern in the community. The USDE's APY rose 113 percent on March 5 but has since fallen to 7.15 percent.

We are excited to announce that Athena has introduced BTC as a support asset for USD

This is a critical opening that allows the USDe to scale significantly beyond its current $2 billion supply pic.twitter.com/FOZRWBrVZV

— Athena Labs (@ethena_labs) April 4, 2024

Athena said Bitcoin would offer better liquidity and a more “secure” and “solid” product for USDe tokens.

“BTC derivatives markets are growing faster than ETH and provide better scale and liquidity for delta hedges.”

Athena adopted a delta hedging strategy in the commodities market to protect the USDe's peg.

For example, Athena may have short positions in ether or ether-based derivatives, which will reward when the price of ether falls. As a result, Aetna can offset any downside volatility from USD collateral to upside.

Before the addition of Bitcoin, USDe was backed by Ether (ETH), Tether (USDT), and Ether-based liquid staking tokens at 45%, 38%, and 17%, respectively.

The company generates most of its holdings from Binance, ByBit and OKX at 59%, 15% and 20% respectively. The remaining 6% include Derbybit, Bitgate and BitMEX.

Athena acknowledges that bitcoin does not have a native equity yield like its staking Ether, but says the 3-4 percent equity yield is “less significant” than the funding rate, which could exceed 30 percent.

Related: Athena will be the highest-grossing crypto project – Delphi Labs CEO

Athena is trying to separate its dollar product from the stablecoin by eliminating or significantly reducing its reliance on the traditional banking system.

USDe currently has the fifth largest market capitalization of all U.S. dollar-denominated commodities, according to CoinGecko.

The $2 billion market cap will only travel with USDT, USD Coin (USDC), Dai (DAI) and First Digital USD (FDUSD).

Journal: Unstable Coins: Debasement, Bankruptcy and Other Risks Looming.