Hermetica Labs has unveiled USDh, the pioneering Bitcoin-native synthetic United States dollar, in a significant advancement for Bitcoin-based decentralized finance (DeFi). Set to launch in June, USDh is designed to provide Bitcoin holders the ability to earn substantial yields without relying on traditional banking systems or engaging with non-Bitcoin financial products.
Features of USDh
USDh stands out as it allows users to trade, lend, and transact using a dollar-equivalent asset entirely backed by Bitcoin, thus contributing to increased liquidity and introducing new functionalities within Bitcoin DeFi. Jakob Schillinger, the founder and CEO of Hermetica, emphasized USDh’s role in enriching the Bitcoin DeFi landscape, asserting that it enables holders to maintain their investments in U.S. dollars while generating significant returns.
Sustainability of the 25% Yield
The offer of a 25% annual percentage yield (APY) has sparked discussions on its long-term viability, especially in the context of other high-yield DeFi projects that have faced challenges. Schillinger insists that the yield is sustainable, backed by data from January 2021 to March 2024, which shows an average APY of 11.71%. He attributes the higher returns to the structural demand for long leverage in the Bitcoin futures markets, particularly noting that the yield fluctuates based on the market’s demand.
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Lessons from Past DeFi Experiences
Comparisons are inevitable with other high-yield offerings like Ethena’s USDe and the infamous Anchor Protocol, which offered similar yields before experiencing significant issues. The collapse of Terra’s UST in May 2022, which was previously offering a 20% yield, serves as a cautionary tale of the risks associated with high yields in the crypto sector.
Future of Bitcoin DeFi
Schillinger is optimistic about the future growth of Bitcoin DeFi, suggesting that it could rival and possibly surpass the size of Ethereum’s DeFi ecosystem within five years. He cites the introduction of Ordinals as a key catalyst in this growth, pointing out instances where Ordinal trading volumes have surpassed those of Ethereum and Solana NFTs.
