The developers of USDh, a stablecoin built on Bitcoin’s Layer 2 stack, have completed a deal that brings about $3 million in liquidity to the token.
Decentralized finance (DeFi) protocol Hermetica says it will secure liquidity through a collaboration with Bitcoin lending protocol Zest, becoming the largest stablecoin on Stax.
The companies plan to offer USDh yield through loans against sBTC, a Bitcoin-backed bridging asset that users can use to place their Bitcoin assets in the Stacks ecosystem.
Harmetica said the initial liquidity boost could lead to yield increases in the near term, with annual percentage yield (APY) expected to reach 50%. Hermetica said in an email announcement Wednesday that the average APY is currently 18%.
Stablecoins play an important role in the crypto-economy, offering users a way to hold assets in tokens that are less likely to increase or decrease significantly in value because they are pegged to a fiat currency (usually the US dollar).
Therefore, the stablecoin offering will naturally be an important development in Bitcoin’s evolution into a network capable of supporting DeFi features, a trend that has gained momentum in recent years.
However, it is important to point out that the $3 million in liquidity provided by USDh is insignificant compared to the leading stablecoins in cryptocurrencies. USDT and USDC have market capitalizations of over $138 billion and $51 billion, respectively, highlighting the relatively nascent state of the Bitcoin DeFi sector.
Read more: Circle enters tokenization race with $1.3 billion acquisition of real-world asset issuer Hashnote