First Bitcoin-backed artificial dollar to start with 25% yield
Hermetica has announced the launch of its first Bitcoin-backed artificial US dollar in the latest development of Bitcoin-native Decentralized Finance (DeFi).
The new synthetic dollar, USDh, which is scheduled to be released in June, will offer users a yield of up to 25%, Hermetica's announcement shared with Cointelegraph.
According to Jacob Schillinger, founder and CEO of Hermetica Labs, the new synthetic dollar will allow bitcoiners to hold and produce in US dollars without having to rely on the banking system or exposure to non-Bitcoin products.
Schillinger told Cointelegraph:
“The USDh brings increased liquidity and new use cases to Bitcoin DeFi, allowing Bitcoiners to trade, lend, and trade dollar assets fully backed by Bitcoin.”
Hermetica is part of a broader movement known as Bitcoin DeFi (BTCFi) that aims to bring the Stax-native DeFi protocol and DeFi capabilities on top of Bitcoin to the world's first blockchain network.
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Is 25% yield sustainable in the long run?
The launch of the first Bitcoin (BTC)-backed synthetic dollar comes two months after Ethena USD yielded 27.6% to holders, raising widespread concerns about the protocol's sustainability.
Similar concerns could arise for Hermetica USDh, as the 25% annual percentage yield (APY) is significantly higher than the 20% yield offered by the Anchor Protocol on TerraUSD (UST) before the algorithmic stable coin issuer Terra collapses in May 2022.
According to Hermetica's CEO, the product is sustainable and derived from future funding volumes. Schillinger explained:
“This native product of Bitcoin will evolve with the market's long-term usage needs. Our backtest data from January 2021 to March 2024 shows an average APY of 11.71 percent. During the 2022 bull market, the annualized return was 26.11%.
Schillinger added that the future demand for Bitcoin will make the USDh yield sustainable.
“The yield is sustainable due to the structural demand for long gains in Bitcoin futures markets.”
More and more protocols are being built around Bitcoin, the world's most secure blockchain network, with more utility and DeFi capabilities. Schillinger believes that the introduction of Ordinals is one of the most important for BTCFi. he said:
“We believe Bitcoin DeFi will match and overtake Ethereum DeFi volume in the next 5 years. We're already seeing months where regular trading volume is higher than combined volumes for Ethereum and Solana NFTs. With over $1T in hidden BTC capital, Bitcoin DeFi is poised for explosive growth.”
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