Bitcoin DeFi: USDh promises high returns with revolutionary ‘Bitcoin dollar’

Hermetica Labs is about to launch USDh, the first synthetic dollar fully backed by Bitcoin. This innovative move could significantly expand Bitcoin’s DeFi (decentralized finance) ecosystems by offering Bitcoin holders attractive returns of up to 25%.

https://twitter.com/HermeticaFi/status/1787471465354514569

A gift for Bitcoin hodlers

Jakob Schillinger, founder and CEO of Hermetica, is confident that USDh will revolutionize Bitcoin DeFi. Users can now earn interest on their dollar balances without leaving the Bitcoin network or relying on traditional financial institutions. This functionality specifically targets Bitcoin enthusiasts who may be hesitant to venture outside the Bitcoin ecosystem.

Today, we’re announcing USDh: The first Bitcoin-backed, yield-bearing synthetic dollar.

USDh is the missing primitive that will enable Bitcoin DeFi liquidity to match and eclipse all other ecosystems (yes, $BTC DeFi will surpass $ETH DeFi in the next 5 years).

Here’s why 👇

— jakob.btc (@jakob_btc) May 6, 2024

Hermetica is a DeFi protocol built on the Stacks blockchain, a layer-1 solution that brings smart contract functionality to Bitcoin. This places USDh within the broader trend of Bitcoin DeFi (BTCFi), which aims to replicate the success of Ethereum-based DeFi on the Bitcoin network.

Sustainability concerns overshadow high returns from new Bitcoin-backed synthetic dollar

However, the high interest rate offered by USDh raises questions about its sustainability. Similar offerings, such as Ethena’s USDe with a 27.6% yield, have raised concerns about long-term viability. The May 2022 collapse of TerraUSD (UST), which offered a 20% return before the fall, serves as a stark example of the risks associated with extremely high returns.

Synthetic dollar

Hermetica addresses these concerns by claiming that their method of generating returns is sustainable. According to Schillinger, the return comes from Bitcoin futures funding rates, which fluctuate based on the market’s need for leverage. Backtests conducted by Hermetica suggest an average annual return of 11.71% between January 2021 and March 2024, peaking at 26.11% in the 2022 bull market. Schillinger further highlights the inherent demand for leverage in the Bitcoin futures markets as a factor that will ensure that USDh returns remain sustainable.

Bitcoin DeFi in opmars: Ordinals als katalysator

The launch of USDh coincides with an increasing trend of DeFi protocols developing functionalities specifically for Bitcoin. The introduction of Ordinals, a protocol that makes it possible to write data to individual Satoshis (the smallest unit of Bitcoin), is seen by Schillinger as an important catalyst for BTCFi. He predicts that Bitcoin DeFi will not only reach the size of Ethereum DeFi, but possibly surpass it within the next five years.

Ordinals’ high trading volume, which in some months exceeds that of Ethereum and Solana NFTs combined, fuels his optimism. With a massive pool of unused capital potentially exceeding $1 billion tied up in Bitcoin, Schillinger is confident that Bitcoin DeFi is poised to experience explosive growth.