Hermetica has announced the launch of the first-ever Bitcoin-backed synthetic United States dollar with yield-generating capabilities in the latest development for Bitcoin-native decentralized finance (DeFi).
Slated for release in June, the new synthetic dollar, USDh, will offer users yields of up to 25%, according to Hermetica’s announcement shared with Cointelegraph.
The new synthetic dollar will enable Bitcoiners to hold and earn yield on their U.S. dollars without the need to trust the banking system or gain exposure to non-Bitcoin-related products, according to Jakob Schillinger, founder and CEO of Hermetica Labs.
Schillinger told Cointelegraph:
“USDh will play a pivotal role in bringing increased liquidity and new use-cases to Bitcoin DeFi, allowing Bitcoiners to trade, lend, and transact in a dollar asset that is fully backed by Bitcoin.”
Hermetica is a Stacks-native DeFi protocol on Bitcoin and part of a wider movement known as Bitcoin DeFi (BTCFi), which aims to bring DeFi capabilities to the world’s first blockchain network.
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Is 25% yield sustainable in the long term?
The launch of the first Bitcoin (BTC)-backed synthetic dollar comes two months after Ethena’s USDe launched with a 27.6% yield for holders, creating widespread concerns about the protocol’s sustainability.
Similar concerns could arise for Hermetica’s USDh, as the 25% annual percentage yield (APY) is considerably higher than the 20% yield offered by Anchor Protocol on TerraUSD (UST) before the algorithmic stablecoin issuer Terra collapsed in May 2022.
According to Hermetica’s CEO, the yield is sustainable and derived from futures funding rates. Schillinger explained:
“This Bitcoin-native yield fluctuates with the market’s demand for long leverage. Our backtest data from January 2021 to March 2024 shows an average APY of 11.71%. In the 2022 bull market, the annual return was 26.11%.”
Schillinger added that the demand for Bitcoin futures will keep USDh yield sustainable:
“The yield is sustainable due to the structural demand for long leverage in the Bitcoin futures markets.”
Increasingly, more protocols are building more utility and DeFi capabilities around Bitcoin, the world’s most secure blockchain network. Schillinger believes that the introduction of Ordinals was among the most important catalysts for BTCFi. He said:
“We believe Bitcoin DeFi will match and eclipse the size of Ethereum DeFi in the next 5 years. We're already seeing months where Ordinals trading volumes are higher than volumes for Ethereum and Solana NFTs combined. With over $1T in latent BTC capital, Bitcoin DeFi is primed for explosive growth.”
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