The newest advancement in Bitcoin-native decentralized finance (DeFi) has been revealed by Hermetica: the introduction of the first-ever synthetic US dollar backed by Bitcoin that can generate yield.The new synthetic dollar, known as USDh, is expected to launch in June and provide users with payouts of up to 25%, according to a Hermetica announcement that Cointelegraph received.As per Jakob Schillinger, the CEO and founder of Hermetica Labs, the new synthetic dollar will allow Bitcoiners to hold and earn yield on their U.S. dollars without exposing them to non-Bitcoin related items or having to trust the banking system.
“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.
The first synthetic dollar backed by Bitcoin was introduced two months after Ethena’s USDe, which raised many questions about the protocol’s viability when it debuted with a 27.6% yield for holders.Concerns of a similar nature might apply to Hermetica’s USDh, given that its 25% annual percentage yield (APY) is significantly higher than the 20% yield provided by Anchor Protocol on TerraUSD (UST) prior to the collapse of algorithmic stablecoin issuer Terra in May 2022.As per the CEO of Hermetica, the yield is based on future funding rates and is sustainable. Schillinger clarified.
“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%.”
“The yield is sustainable due to the structural demand for long leverage in the Bitcoin futures markets.”
The most secure blockchain network in the world, Bitcoin, is seeing an increase in the number of protocols that are surrounding it with more useful and DeFi features.According to Schillinger, one of the major impetuses for BTCFi was the introduction of Ordinals. He declared:
“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.”