Bitcoin DeFi Breakthrough: First Bitcoin-Backed Synthetic Dollar to Launch with 25% Yield
May 11, 2024The first-ever Bitcoin-backed synthetic United States dollar, USDh, is set to launch with an attractive 25% yield, marking a significant development for Bitcoin-native decentralised finance.
Hermetica, a Stacks-native DeFi protocol on Bitcoin, announced the launch of USDh, allowing users to earn up to 25% yields. According to Jakob Schillinger, the founder and CEO of Hermetica Labs, USDh will provide Bitcoiners with a reliable way to hold and earn a yield on their U.S. dollars, eliminating the need to rely on traditional banking systems or invest in non-Bitcoin-related products.
The new synthetic dollar, scheduled for release in June, is poised to bring increased liquidity and new use cases to Bitcoin DeFi. It will enable Bitcoiners to trade, lend, and transact using a dollar asset fully backed by Bitcoin.
The launch of USDh follows the recent release of Ethena’s USDe, which offered holders a 27.6% yield. However, concerns about the sustainability of such high yields have been raised. Hermetica’s 25% annual percentage yield (APY) is notably higher than the 20% yield offered by Anchor Protocol on TerraUSD (UST) before Terra’s collapse in May 2022.
Despite concerns, Schillinger assures that the yield is sustainable and derived from future funding rates. He explained that the Bitcoin-native yield fluctuates with the market’s demand for long leverage. According to backtest data from January 2021 to March 2024, the average APY was 11.71%, reaching 26.11% during the 2022 bull market.
Schillinger is confident that the demand for Bitcoin futures will keep USDh yield sustainable, stating that the structural demand for long leverage in the futures markets supports this.
As more protocols develop utility and DeFi capabilities around Bitcoin, Schillinger believes that Bitcoin DeFi will surpass Ethereum DeFi in the next five years. He pointed out that Ordinals trading volumes have already exceeded Ethereum and Solana NFT volumes combined in certain months, indicating the potential for explosive growth in Bitcoin DeFi, backed by over $1 trillion in latent BTC capital.
