Deribit has just launched USDe as an accepted currency on the platform. This launch includes:
- Deposits and withdrawals
- Spot markets vs BTC, ETH, USDC, and USDT (all with zero fees)
- Cross collateral inclusion
BUIDL will soon be following in the same path, with USYC already on the platform since October 2024.
All three of these currencies share the characteristic of generating a return for holders of the tokens. So first, let’s take a brief look at the similarities and differences between these tokens, and then discuss why yield generating tokens are particularly useful in the Deribit cross collateral system.
USDe from Ethena
USDe from Ethena is a reward bearing synthetic dollar. It is designed to have a relatively stable value vs the US dollar, much like the stablecoins USDC and USDT. However, unlike those stablecoins, USDe is backed by crypto holdings that are hedged with derivatives positions. Ethena are using the funds to run cash and carry trades (a.k.a. basis trades), which generates a yield, and this yield is then passed back to the holders of the token on Deribit via rewards credited by Deribit’s program.
A cash and carry is a trade where an underlying asset is purchased, and the resulting long spot position is hedged by an accompanying short position using perpetuals and/or dated futures. For example, one might purchase BTC, and then short the BTC perpetual. On average the short perpetual position will earn funding, and this funding received is the yield. Alternatively a dated future can be used to earn a yield by locking in the difference between the spot price and the dated future price instead.
In both cases the delta of the spot position is hedged, so the position overall is delta neutral, and can be thought of as a synthetic cash position that earns a yield from the carry of the derivatives position.
For more practical examples of cash and carry trades, check out this playlist on the Deribit youtube channel here.
To read more about USDe, see the Ethena website here.
BUIDL from Blackrock
Managed by the world’s largest asset manager, Blackrock, BUIDL is similarly designed to have a stable value of $1 per token, however it is backed by more traditional financial assets, instead of crypto assets. The core investments are overnight repurchase agreements (repos) and 3-month US Treasuries. These assets are very liquid, and also generate a yield, which is used to pay interest to holders of the token.
To read more about BUIDL, see this page on the Securitize website here.
USYC
As with BUIDL, USYC is backed by traditional financial assets, with the cash primarily being invested in overnight repos. With USYC, the yield is reflected in the gradual increase of the price of the USYC token through an accumulative NAV calculation. Therefore the price of USYC is not pegged to $1.
To read more about USYC, see the Hashnote website here as well as this previous insights post.
Yield generating tokens
There are some differences in how each is implemented, including which assets are held to provide the backing and the strategies used to generate the yield, but each of the three tokens mentioned so far in this article are aiming to serve a similar purpose. They aim to provide a stable asset to hold, and for that asset to generate a yield for token holders.
USDe and BUIDL pay the yield as a separate payment to holders, whereas the yield for USYC is accrued via the increase in the token price.
Unlike most traditional financial products, all of these tokens benefit from being tradeable 24/7/365 on centralised crypto exchanges such as Deribit, as well as from their ability to be self-custodied. They also have very small minimum sizes, meaning small traders are not excluded from the benefits of yield generating tokens.
Cross collateral on Deribit
Deribit are continuing to add yield generating tokens to the platform, and the list of added coins already includes stETH (staked ETH) which generates a yield but is tied to the value of ETH rather than the dollar. Deposits, withdrawals, and spot markets are available for each, however the main benefit to users is their inclusion in the cross collateral system.
When cross collateral is enabled in a Deribit account, it allows the trader to use currencies other than the settlement currency of an instrument as collateral to trade that instrument. Any currency that is considered a cross collateral currency can be used.
Each of the yield generating tokens added is considered a cross collateral currency on Deribit. This means that they can be used as collateral to trade any of the derivatives instruments on Deribit.
This allows traders to retain access to the derivatives of the more volatile assets, while keeping at least a portion of their funds in much more stable assets, all while those stable assets also generate a yield.
Stablecoins such as USDC and USDT can also be used if a trader prefers, however these coins do not pass on any yield to the holders of the token, making them less capital efficient.
For those wanting to maximise capital efficiency, it is well worth looking into Deribit’s cross collateral feature in more detail. There is more information on cross collateral in this article but as always, the most up to date information can be found in the Deribit Knowledge Base here.
