Bitcoin-Backed Synthetic Dollar Offers Lucrative Returns for DeFi Users
Hermetica Labs is set to revolutionize the Bitcoin DeFi ecosystem with the launch of USDh, the world’s first Bitcoin-backed synthetic dollar. This groundbreaking development, scheduled for release in June, aims to attract Bitcoin holders by offering impressive yields of up to 25%.
Jakob Schillinger, the founder and CEO of Hermetica, is confident that USDh will be a game-changer for Bitcoin DeFi. It provides users with the opportunity to earn interest on their dollar holdings without having to rely on traditional financial institutions or leave the Bitcoin network. This feature is particularly appealing to Bitcoin enthusiasts who are hesitant to venture outside the Bitcoin ecosystem.
Hermetica operates on the Stacks blockchain, a layer-one solution designed to bring smart contract functionality to Bitcoin. This places USDh within the broader Bitcoin DeFi (BTCFi) trend, which aims to replicate the success of Ethereum-based DeFi on the Bitcoin network.
However, the high yield offered by USDh has raised concerns about its long-term sustainability. Similar offerings, such as Ethena’s USDe with a 27.6% yield, have sparked worries about their viability. The collapse of TerraUSD (UST) in May 2022, which offered a 20% yield before its demise, serves as a stark reminder of the risks associated with excessively high returns.
To address these concerns, Hermetica asserts that their yield generation method is sustainable. Schillinger explains that the yield is derived from Bitcoin futures funding rates, which fluctuate based on market demand for leverage. Backtesting conducted by Hermetica indicates an average annual yield of 11.71% between January 2021 and March 2024, with a peak of 26.11% during the 2022 bull market. Schillinger also highlights the inherent demand for leverage in Bitcoin futures markets as a factor that will ensure the sustainability of USDh’s yield.
The launch of USDh aligns with the growing trend of DeFi protocols incorporating functionalities specifically tailored for Bitcoin. The introduction of Ordinals, a protocol that allows data to be inscribed onto individual Satoshis (the smallest unit of Bitcoin), is seen as a significant catalyst for BTCFi. Schillinger predicts that Bitcoin DeFi will not only reach the size of Ethereum DeFi but potentially surpass it within the next five years.
Schillinger’s optimism is fueled by the high trading volume of Ordinals, which has at times surpassed that of Ethereum and Solana NFTs combined. With a vast pool of untapped capital potentially exceeding $1 trillion locked within Bitcoin, Schillinger believes Bitcoin DeFi is poised for explosive growth.
Tags: Bitcoin (BTC), Bitcoin reserve, Cryptocurrency
