USDh & sUSDh

For questions frequently asked about USDh and sUSDh.

Q. What is the difference between USDh and sUSDh?

A. USDh is a Bitcoin-backed synthetic dollar fully outside of the banking system that represents 1 USD due to how it is created.

sUSDh, on the other hand, is the yield-bearing token issued when USDh is staked.

Q. Why are USDh and sUSDh backed by Bitcoin instead of another asset?

A. Bitcoin is the hardest collateral with the most secure blockchain in the world.

A stablecoin backed by Bitcoin's technological foundation has been sorely missing — Hermetica is here to fill that void.

Q. What are the benefits of USDh and sUSDh?

A. Since USDh is a synthetic dollar fully backed by Bitcoin. That means its a dollar fully outside banking system - its Bitcoin all the way down.

USDh and sUSDh allow you to hold a dollar immune to government censorship and intervention with significant yield opportunities.

It also allows you to hold dollars and exit Bitcoin positions without ever leaving the security of the Bitcoin blockchain.

Q. Why launch on Runes? What are Runes?

The What

The Bitcoin Runes Protocol (Runes) is fungible token standard created by Casey Rodarmor, the mind behind Ordinals.

Runes leverages the way Bitcoin already works with its Unspent Transaction Output (UTXO) model, minimizing the amount of additional data stored on the blockchain.

In essence, Runes functions as a specialized layer on top of the Bitcoin network and allows anyone to easily generate and manage their fungible tokens.

The Why

USDh on Runes means we are fully native to Bitcoin Layer 1. We use PSBTs to mint and stake; in other words: no L2s or altchains are needed.

Runes makes it possible to actually hold a stablecoin in your Bitcoin wallet and transfer your stablecoin in Bitcoin transactions — the asset itself is Bitcoin.

Q. What are the risks of USDh and sUSDh?

A. Our team views the biggest risks in 2 categories that we have mitigated.

1. Periods of draw down that may affect sUSDh: Our historical performance data shows certain moments of the past were affected by draw down. However, these periods of draw down are manageable. The draw down is not steep and accounts for only a minuscule amount of time - 6% of the reviewed time period. Our team has mitigated draw down with the Hermetica Insurance Fund.

2. Counterparty risk: The Bitcoin DeFi ecosystem is not yet at a stage where this product can be offered exclusively using decentralized applications. Instead, Hermetica needs to use the services of centralized exchanges which. Counterparty risk is mitigated through the use of off-exchange settlement (OES) providers that mirror funds onto exchanges for trading without ever being held on the exchange or their ledgers.

Q. What blockchains do USDh and sUSDh operate on?

A. USDh and sUSDH are currently live on Runes. Our next release of USDh and sUSDh will be on Bitcoin Layer 2s (like Stacks).

As new L1 and L2 solutions develop on Bitcoin and other blockchains, we will evaluate potential expansions.

Q. Where does the yield come from?

USDh is created when a user deposits collateral (BTC) to Hermetica. Hermetica uses that collateral to enter into a position on a Bitcoin derivatives exchange– we simultaneously hold spot BTC, while also opening up a short perpetual futures position.

As a result, the underlying position is price-stable in dollar terms. This position is delta-neutral because it is perfectly hedged.

In addition to being dollar-stable, this position can earn ongoing yield.

In derivatives markets, funding rates refer to periodic payments made from one side of the market to the other to help balance out the price of the derivative vs. the underlying asset. Whenever the funding rate is positive (longs are paying shorts), the position held by Hermetica earns yield.

Hermetica passes the yield onto those who stake USDh. USDh stakers receive the liquid token sUSDh - a fully composable on-chain asset that lets stakers take advantage of the Bitcoin Bond. It can be held, transferred, and utilized throughout the Bitcoin DeFi ecosystem

Yield from funding rate payments is automatically distributed to sUSDh token holders on a continuous, daily basis.

Q. How do you maintain the peg?

Approved participants are given the right to arbitrage the peg by buying USDh below peg and redeeming it for one USD worth of Bitcoin.

This arbitrage maintains the USDh peg.

Q. What does the 'h' in USDh/sUSDh stand for?

A. The 'h' stands for both Hermetica and hedged - a reference to how USDh is minted.