Hermetica Labs launches USDh, the first Bitcoin-native synthetic USD

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Hermetica Labs, a decentralized finance protocol built on top of Bitcoin, has launched USDh, the first-ever Bitcoin-native synthetic US dollar. The new offering allows users to gain yields of up to 25% with zero exposure to traditional finance.

The new synthetic dollar is designed to increase liquidity and utility to the decentralized finance ecosystem formed around Bitcoin through L1 and L2 protocols. According to Hermetica CEO Jakob Schillinger, USDh will enable Bitcoiners to hold and earn yield on their dollar value while remaining fully backed by Bitcoin.

“USDh is a groundbreaking synthetic dollar fully backed by Bitcoin and outside the fiat system. No banks, no fiat, just Bitcoin,” Hermetica Labs said on X.

The launch of USDh follows the introduction of Ethena’s USDe in March, which offered a 27.6% yield and raised concerns about the protocol’s long-term sustainability. Similar questions may arise regarding Hermetica’s 25% annual percentage yield (APY), which significantly exceeds the ill-fated Anchor Protocol’s 20% yield on TerraUSD (UST) before its collapse in May 2022.

Notably, Fantom founder Andre Cronje has spoken out on this trend, criticizing negative funding rates and non-collateralized stablecoins.

On this same subject, Schillinger asserts that USDh’s yield, derived from Bitcoin futures funding rates, is sustainable due to the structural demand for long leverage in Bitcoin futures markets. Backtest data (as gathered by Hermetica Labs) from January 2021 to March 2024 shows an average APY (annual percentage yield) of 11.71%, with an annual return of 26.11% during the 2022 bull market.

The introduction of Ordinals has been a significant catalyst for the growth of Bitcoin DeFi (BTCFi), Schillinger claims. He believes that BTCFi will match and eclipse the size of Ethereum DeFi within the next five years, citing instances where Ordinals trading volumes have surpassed those of Ethereum and Solana NFTs combined.

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