Ethena Introduces Bitcoin as Backing Asset to Enhance Safety of USDe

Ethena, a controversial platform in the cryptocurrency space, has been making waves since its January rollout by generating yields through shorting ether (ETH) futures and pocketing funding rates. The platform’s native stablecoin, USDe, is designed to maintain a $1 peg at all times and has seen over $2 billion in issuance since its release, with demand continuing to grow.

In a recent development, Ethena Labs announced that they will start purchasing and shorting bitcoin (BTC) as part of a cash-and-carry trade. Developers claim that this move will create a “safer” USDe synthetic dollar product for users. Despite facing criticism for its strategy of shorting ETH futures, Ethena has managed to achieve an impressive annual yield of 37%.

Funding rates play a crucial role in Ethena’s strategy, as they involve periodic payments to traders based on the difference between perpetual contract markets and spot prices. While some detractors have raised concerns about the platform’s approach, the demand for USDe has continued to grow, leading developers to explore new opportunities for enhancing user yields.

By adding bitcoin to the mix, Ethena aims to boost user yields and further increase USDe issuance. Developers believe that BTC derivative markets offer better scalability and liquidity compared to ETH, making it a strategic move for the platform’s growth. With Ethena’s hedges representing a significant portion of ETH open interest, the addition of BTC as a backing asset is expected to provide a more robust foundation for USDe.

On Ethena, users can deposit various stablecoins to receive USDe, which can then be staked for additional yield. The platform utilizes a futures mechanism similar to a “cash and carry” trade, where traders take a long position in an asset while simultaneously selling the underlying derivative. This approach aims to earn money from funding payouts rather than relying on the price movement of the underlying asset.

Overall, Ethena’s integration of bitcoin as a backing asset marks a significant milestone for the platform as it continues to innovate in the DeFi space. Despite facing challenges and criticism, Ethena remains committed to providing a secure and profitable environment for its users.