By: Isha Das
Ethena, a blockchain project, recently incorporated Bitcoin as a collateral for its USDe synthetic dollar, an announcement that has roused a significant level of controversy regarding potential contagion risks. The platform's strategy includes shorting Bitcoin futures and benefiting from funding rates to generate yield on the USDe tokens.
The crypto community is showing mixed reactions towards this strategic move, with some expressing concern over the contagion risks that this decision could pose for Bitcoin holders. It has drawn comparisons with Terra Luna's inclusion of Bitcoin as collateral for its algorithmic UST stablecoin, which failed spectacularly.
Although some believe this decision could negatively affect the stability of the Bitcoin market, especially in bear markets, others argue that Ethena's strategy is fundamentally a basic cash-and-carry trade. The platform plans to use minted assets to purchase Bitcoin, which would then be used as collateral to short its original value in perpetual futures trading. In theory, this move aims to offset any downward trends in Bitcoin value by increasing related perp positions.
Regardless of contrasting views within the industry, Ethena's decision marks a significant milestone in the integration of prominent cryptocurrencies into Defi projects. However, many in the crypto sector will likely keep a close watch on the impact of this decision on the synthetic dollar's functionality and stability.