Key Points
- Hermetica is launching the first Bitcoin-backed synthetic US dollar with yield-generating capabilities.
- The synthetic dollar, USDh, will offer users yields of up to 25%.
Hermetica revealed plans to introduce the inaugural Bitcoin-backed synthetic US dollar, which also possesses the ability to generate yield. This cutting-edge development is part of the ongoing evolution of decentralized finance (DeFi) that is rooted in Bitcoin.
USDh: A New Synthetic Dollar
The synthetic dollar, known as USDh, is expected to be released in June. It is predicted to provide users with yields as high as 25%, as per Hermetica’s announcement. This innovative synthetic dollar will allow Bitcoin holders to keep and earn yield on their US dollars without having to rely on the banking system or delve into non-Bitcoin-related products. This information was shared by Jakob Schillinger, the founder and CEO of Hermetica Labs.
Schillinger stated, “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’s Role in Bitcoin DeFi
Hermetica is a DeFi protocol native to Stacks on Bitcoin and is part of the broader Bitcoin DeFi (BTCFi) movement. This movement seeks to introduce DeFi capabilities to the world’s inaugural blockchain network.
The introduction of the first Bitcoin-backed synthetic dollar follows the launch of Ethena’s USDe, which offered a 27.6% yield for holders. This high yield sparked concerns about the protocol’s sustainability, and similar concerns may arise for Hermetica’s USDh, as its 25% annual percentage yield (APY) is significantly higher than the 20% yield offered by Anchor Protocol on TerraUSD (UST) prior to the collapse of the algorithmic stablecoin issuer Terra in May 2022.
However, Schillinger assures that the yield is sustainable and is derived from futures funding rates. He 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 further stated 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.”
More protocols are increasingly 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.”
