This scenario is becoming increasingly likely given that Fed Chair Powell’s 25 basis point rate cut today gives the roughly $7.4 trillion in money market funds a reason to leave the sidelines and flow into assets like Bitcoin, especially now that Bitcoin exposure is more accessible through proxy vehicles like spot Bitcoin ETFs and Bitcoin Treasury Bonds.
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Ethena Labs' algorithmic stablecoin, USDe, currently relies on collateralized BTC and stETH, along with their inherent yields. It simultaneously creates short positions in Bitcoin and ETH to balance delta and leverages perpetual/futures funding rates to maintain the peg and provide yield. This balance is achieved by using spot gains to offset losses from short positions, while still reaping the benefits of ETH staking and the short position funding rate.
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The US's attitude towards DeFi is undergoing a fundamental shift. What will happen once the US's regulatory constraints on DeFi are truly lifted? Imagine: pension funds could allocate DeFi assets, insurance companies could participate in on-chain lending, and corporate treasuries could earn returns from the protocol. This would be a trillion-dollar inflow, not just the tens of billions currently. In this upcoming era of "compliant DeFi", Lombard's imagination will be further opened up. Of course, participating in any project requires your own judgment. But at least, when you see the label BTCFi, remember to ask: Is it BTCFi or DeFi? Sometimes the answer is more important than the question.
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