Bitcoin
Bitcoin Developers Launch BTC-Backed Stablecoin as Rune Token
Cryptocurrency developers have taken advantage of the new Runes token standard to launch a new dollar-pegged stablecoin native to the Bitcoin blockchain.
But there’s a twist: Its developers told Decrypt that the token, USDh, is backed by and redeemable for BTC rather than real money. In fact, the stablecoin offers holders a yield that they say can rise as high as 25% annually.
“USDh is Bitcoin at every level, meaning the protocol is not dependent on fiat rails and can operate completely outside of the traditional banking system,” said Jakob Schillinger, founder and CEO of Hermetica, the stablecoin protocol behind USDh.
Runes is a new token standard for Bitcoin released by Ordinals creator Casey Rordamor in April, and is now more commonly used than the Ordinals and BRC-20 standards that came before it. Runes is known to be much more data-efficient than its predecessors and has more potential to unlock practical Bitcoin-based assets beyond meme coins.
Hermetica’s model differs from more widely used stablecoins such as Tether (USDT) and Circle USD (USDC), which rely on centralized financial institutions to provide custody of the assets backing their tokens. These companies currently control well over $145 billion in both tokens, including a mix of cash and cash equivalents — mostly U.S. Treasury bills.
Tether and Circle earn a yield on the Treasury bills they hold and keep all profits generated by that debt for themselves. They also have the power to seize or freeze any tokens held by their users, as they have done repeatedly in response to sanctions requirements established by the US Department of the Treasury.
In contrast, Hemetica’s design pays the yield generated by the protocol to its token holders. These holders are also immune to the de-pegging risk that can plague traditional stablecoin holders in the event of a bank failure. as seen with USDC during the fall of Silicon Valley Bank last year.
“The protocol accomplishes this by coupling a BTC spot position with a perpetual short futures position,” Schillinger explained. The protocol’s design mimics that of Ethena, the pioneer of the Ethereum-based stablecoin USDe, whose $3.4 billion token generates yield for investors on the short position it regularly holds.
Given that Bitcoin’s DeFi ecosystem is nascent, Hermetica believes its protocol can tap into the estimated $360 billion of “idle” capital in the ecosystem from those seeking to generate yield. “Over the past 4.5 years, the annualized yield on funding rates has been 12%,” Schillinger noted.
In a press release, Hemetica said it intends to scale its Bitcoin-native DeFi using Stacks, a layer 2 blockchain of Bitcoin built for smart contract compatibility. Stacks was recently cleared of wrongdoing by regulators for potential securities fraud after three years of investigation.
The Stacks protocol already has integration with Liquidium, a layer-1 peer-to-peer protocol for lending and borrowing Bitcoin-based assets.
“A trusted native stablecoin is crucial for the entire blockchain ecosystem,” Liquidium CEO Robin Obermaier said on the matter. “Enabling users to use stablecoins in Bitcoin DeFi applications is the next big milestone for Bitcoin.”
Edited by Ryan Ozawa.