First Bitcoin-backed synthetic dollar is set to launch

Hermetica announced the launch of the first-ever Bitcoin-backed synthetic US dollar

A synthetic dollar is a type of digital currency that tries to keep its value the same as the U.S. dollar. This kind of money is not real dollars, but it is designed to act like one. One way to create a synthetic dollar is by using Bitcoin as a backing. This means that people lock up their Bitcoin to create a new kind of stable money that is supposed to stay equal in value to the dollar.

This is useful because it combines the stability of dollar values with the benefits of using digital currencies like Bitcoin. Recently, a company called Hermetica Labs announced they are going to introduce a new type of synthetic dollar called USDh^[1].

This will be the first synthetic dollar backed by Bitcoin. They plan to release USDh in June, especially for people who own Bitcoin. Hermetica Labs says that people who use USDh can earn up to 25% interest, which is a way of earning more money over time by holding onto these synthetic dollars.

The new synthetic dollar will enable investors to hold and earn on their U.S. dollars without banks

Jakob Schillinger, the founder and CEO of Hermetica, says that USDh will be very important for Bitcoin and decentralized finance (DeFi). DeFi is a way of handling financial transactions with cryptocurrencies without needing banks or other traditional financial companies^[2].

"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," Schillinger said.

With USDh, Bitcoin owners can earn interest on their investments while still being part of the Bitcoin network. This is great for people who like Bitcoin and want to stay within this digital system.

Hermetica is built on the Stacks blockchain. This technology allows Bitcoin to have smart contracts and special digital agreements that help people do business together. By using the Stacks blockchain, USDh fits into a growing trend of making the Bitcoin network more useful for different kinds of financial activities, similar to what has been done with Ethereum, another type of cryptocurrency.

The future of Bitcoin: new synthetic US dollar reportedly offers up to 25% yield

This new launch and all the opportunities could mean that there will be more ways to use Bitcoin in the future. However, there are worries about how long the new Bitcoin-backed synthetic dollar, USDh, can keep offering high profits. USDh promises to give investors a 25% return, but similar high-return offers have failed before. For example, TerraUSD promised a 20% return but collapsed in May 2022.

This situation shows the risks of expecting too much profit. Hermetica, the company behind USDh, says their profit-making method is reliable. Jakob Schillinger, the CEO, explains that the profits come from changes in Bitcoin futures, which are agreements to buy or sell Bitcoin at a future date for a specific price. This price changes as more people want to use these futures to bet on Bitcoin's price^[3].

Hermetica's tests show that, on average, they could make an 11.71% return each year from January 2021 to March 2024. During a strong market in 2022, returns even reached 26.11%. Schillinger believes there will always be a demand for these Bitcoin futures, which should keep USDh's profits steady.

Bitcoin's decentralized finance (DeFi) sector is growing, thanks to new technologies like Ordinals. Ordinals let people add extra data to individual Satoshis, the smallest parts of Bitcoin. Schillinger thinks this will really boost Bitcoin DeFi, and it might even become bigger than Ethereum's DeFi sector in five years.

He is encouraged by the high amount of trading in Ordinals, sometimes even more than digital art trading on Ethereum and Solana. With so much money in Bitcoin, Schillinger feels Bitcoin DeFi could see huge growth soon.