Hermetica Launches First Bitcoin-backed Synthetic Dollar

Hermetica has announced the launch of the first Bitcoin-backed synthetic United States dollar with yield-generating capabilities, marking a significant development for Bitcoin-native decentralized finance (DeFi).

Scheduled for release in June, the new synthetic dollar, USDh, will offer users yields of up to 25%, according to Hermetica’s announcement shared with Cointelegraph.

The synthetic dollar will allow Bitcoin holders to earn yields on their U.S. dollars without relying on the banking system or engaging with non-Bitcoin-related products, according to Jakob Schillinger, founder and CEO of Hermetica Labs. Schillinger told Cointelegraph:

“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 the Bitcoin DeFi (BTCFi) movement, which aims to bring DeFi capabilities to the world’s first blockchain network.

The launch of the Bitcoin-backed synthetic dollar follows Ethena’s USDe, which launched two months earlier with a 27.6% yield for holders, raising concerns about sustainability.

Similar concerns may arise for Hermetica’s USDh, as its 25% annual percentage yield (APY) is notably higher than the 20% yield offered by Anchor Protocol on TerraUSD (UST) before the algorithmic stablecoin issuer Terra collapsed in May 2022.

Hermetica’s CEO stated that the yield is sustainable, derived from futures funding rates. Schillinger 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 added 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 utility and DeFi capabilities around Bitcoin, the world’s most secure blockchain network. Schillinger believes that the introduction of Ordinals was a significant catalyst 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.”

Sources:

https://cointelegraph.com/news/hermetica-usdh-bitcoin-backed-synthetic-dollar

https://u.today/hermetica-defi-launches-first-bitcoin-backed-synthetic-dollar-usdh