By George Ward
Hermetica has introduced an innovation for Bitcoin-based decentralized finance (DeFi). The new product is the first BTC-backed synthetic US dollar offering yield-generating attributes (USDh). It is set to debut in June and is expected to revolutionize the digital finance landscape.
Bitcoin’s DeFi Revolution
The introduction of the synthetic dollar, as proposed by Jakob Schillinger, the founder and CEO of Hermetica Labs, represents a significant paradigm shift for Bitcoin (BTC) enthusiasts. This innovative financial instrument allows Bitcoin holders to retain and earn yields on their US dollar holdings without relying on traditional banking systems or investing in non-Bitcoin-related assets.
Schillinger emphasized that the introduction of USDh represents a watershed moment in the evolution of Bitcoin DeFi — a solution that improves liquidity and opens up new use cases within the ecosystem. With USDh, Bitcoiners access a dollar-denominated asset fully backed by BTC, ensuring stability and security in financial transactions.
Hermetica, a prominent Stacks-native DeFi protocol in the Bitcoin community, leads this initiative as part of an expanded Bitcoin DeFi (BTCFi) movement. BTCFi aims to realize the transformative potential of decentralized finance on the world’s first blockchain network, allowing users to trade, lend, and transact with unprecedented ease and efficiency.
BTCFi’s Sustainability
Hermetica’s announcement further revealed that users can expect yields of up to 25%, providing a lucrative avenue for investors seeking profitable opportunities within the burgeoning realm of cryptocurrency. The introduction of the first BTC-backed synthetic dollar is a significant development in the cryptocurrency landscape, two months after Ethena launched its USDe, offering a 27.6% yield for its holders.
Nevertheless, this launch has sparked debate about the protocol’s long-term viability. Similar issues may occur with Hermetica’s USDh, given its 25% annual percentage yield (APY), which significantly exceeds the 20% APY previously offered by Anchor Protocol on TerraUSD (UST) before the 2022 collapse of Terra, the algorithmic stablecoin issuer.
Schillinger explained that the BTC-native yield is subject to fluctuations caused by the market’s demand for long leverage. Extensive backtesting data from January 2021 to March 2024 shows an average APY of 11.71%.
Notably, the annual return reached an impressive 26.11% during the 2022 bullish market. Schillinger further explained that the continued demand for BTC futures would support the USDh yield, stating that the yield is sustainable due to the structural demand for long leverage in the futures markets.
Crypto Industry Expansion
Lately, there has been a surge in protocols adding utility and DeFi capabilities to Bitcoin, the world’s most secure blockchain network. Accordingly, Schillinger is optimistic about the future of BTCFi, citing the success of Ordinals.
He expressed confidence that Bitcoin DeFi could outperform Ethereum DeFi in scale within the next five years, referencing the substantial trading volumes of Ordinals, which have exceeded those of Ethereum and Solana’s NFTs combined in certain months.