Ethena Labs Adds Bitcoin As a Backing Asset for USDe
Ethena Labs is adding Bitcoin as a backing asset for its USDe synthetic dollar to increase scalability and gain access to the Bitcoin futures market. The crypto community fears a repeat of the Luna situation.
Since the beginning of the year, USDe has risen strongly and strengthened on the back of the airdrop campaign from Ethena Labs. This has brought the total blockchain value close to $2 billion. Recently, the project team came to the decision to add Bitcoin as a backing asset of its stablecoin in order to increase the market supply of USDe by 250%. By doing so, Ethena hopes to increase the scalability and overall stability of USDe.
Excited to announce that Ethena has onboarded BTC as a backing asset to USDe
— Ethena Labs (@ethena_labs) April 4, 2024
This is a crucial unlock which will enable USDe to scale significantly from the current $2bn supply pic.twitter.com/FOZRWBrVZV
Nevertheless, the move has been greeted cautiously by the crypto community. CryptoQuant noted the risks to Bitcoin that could arise, and also compared Ethena's move to the collapse of the Luna token. Terra (LUNA) maintained a UST stablecoin peg with Bitcoin reserves in the Luna Foundation Guard. Terra's collapse crashed the cryptocurrency market and triggered the bankruptcy of multiple cryptocurrency firms.
This isn't good news for #Bitcoin holders—it sounds like a potential contagion risk, like LUNA. Correct me if I'm wrong. Is it a good news? https://t.co/LjPUUHq15f
— Ki Young Ju (@ki_young_ju) April 5, 2024
The criticism was supported by Andre Cronje from Fantom Foundation. He noted that the Ethena strategy works in the current market, but in a bear market it won't and will bring more problems. By the way, CryptoQuant also emphasized possible failures in the strategy when the current trend reverses.
Every so often we see something new in this space. I often find myself on the mid curve for an extensive amount of time. I am comfortable here. That being said, there have been events in this industry I wish I was more curious about, there have also been events I definitely did…
— Andre Cronje (@AndreCronjeTech) April 3, 2024
Earlier, crypto market participants have already condemned Ethena's approach. In February, the company issued USDe on the Ethereum network, at that time describing its stablecoin as a "synthetic dollar". DeFi Llama developer concluded that the real problem with the stablecoin is the potential inversion of returns.
i dont get why so many people are focused on ethena's high yield (its a basis trade) instead of the fact that there's been 2 projects that tried this before and both gave up because they lost money due to yields inverting
— 0xngmi (@0xngmi) February 20, 2024
Overall, experts noted the crypto market's heightened concern in this case as a green flag.
