USDh & sUSDh

For questions frequently asked about USDh and sUSDh.

Q. What is the difference between USDh and sUSDh?

USDh is a Bitcoin-backed stablecoin fully outside of the banking system. It represents one USD worth of BTC. Learn more about how it works here.

sUSDh is the yield-bearing liquid staking token (LST) issued when USDh is staked. sUSDh accrues yield from funding rate payments.

Q. What are the benefits of USDh and sUSDh?

USDh is a synthetic dollar fully backed by Bitcoin and fully outside the banking system—it's Bitcoin all the way down. USDh allows you to hold dollars in your Bitcoin wallet.

sUSDh allows you to earn an attractive Bitcoin native yield of up to 25% APY derived from funding rate payments.

Q. Where can I buy USDh?

You can buy USDh on common crypto marketplaces. On Runes, you can buy USDh on Magic Eden and DotSwap. On Stacks, you can buy USDh on Bitflow, Velar, and directly through the Hermetica app which routes your transaction through DeFi pools.

Click here to get started.

Q. How does Hermetica maintain the USDh peg?

The protocol couples spot BTC holdings with a short perpetual futures position. This eliminates the exposure to Bitcoin's price (delta-neutral) and creates a price stable USD position.

Q. Where does the yield come from?

The yield is generated through funding rate payments from short perpetual futures positions, which are used to stabilize the dollar value of USDh. 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 (long positions are paying short positions), the position held by Hermetica earns interest. Hermetica passes the yield to those who stake USDh.

What happens if the funding rate is negative?

The native yield of sUSDh is generated by a positive funding rate incurred by the short position backing USDh. While on average the funding rate is positive (yield generating), it is possible that at times, typically during bear markets, the funding rate can go negative. This means that the position held by Hermetica incurs a cost.

Hermetica mitigates this risk by having the Hermetica Reserve Fund that kicks in every time negative funding has to be paid. The Hermetica Reserve Fund grows over time, as a fraction of the positive funding is fed into the Reserve Fund. We adjust this fraction according to market conditions.

Using historical funding data as well as forward looking analysis, we have determined a safe initial size of the Reserve Fund that makes the risk of depletion due to negative funding unlikely. To learn more read our Reserve Fund paper.

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

Bitcoin, being strictly limited in supply, is the hardest collateral asset in the world - digital gold.

By making USDh the first dollar on the new digital gold standard, it inherits the properties of Bitcoin:

• Independence from the fiat banking system

• Reliable, secure and censorship resistant

At Hermetica, we take the bold position that the world economy will converge on a new Digital Gold Standard, the Bitcoin Standard. To express this view, USDh is entirely Bitcoin-backed.

Q. What if the Bitcoin price moves up or down? Will my USDh value change?

No, the fully delta-neutral position used to maintain the peg removes all exposure to Bitcoin’s price movement.

You can think of it this way: 1 USDh always equals $1.00 of Bitcoin.

Q. Why would I hold USDh over Bitcoin?

USDh is not a competitor to Bitcoin; USDh is an alternative to dollars in a bank account. While we believe the world will converge on a Bitcoin Standard, US dollars still play a critical role in the economy.

Here are the top use cases of USDh:

• Earn a dollar yield of up to 25%

• Hold dollars outside the fiat system

• Transact dollars in Bitcoin DeFi

Q. Why launch on Runes? What are Runes?

The What

The Bitcoin Runes Protocol (Runes) is a fungible token standard created by Casey Rodarmor, the creator of Ordinals.

Runes leverages the Bitcoin's 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 transfer fungible tokens.

The Why

Hermetica launched USDh on Runes to be fully native to Bitcoin Layer 1. We use PSBTs to mint and stake, no L2s or altchains are needed.

Runes makes it possible to hold a stablecoin in your Bitcoin wallet and transfer your stablecoin in Bitcoin transactions while the asset itself (USDh) is Bitcoin.

Q. What blockchains do USDh and sUSDh operate on?

USDh and sUSDh are currently live and natively issued on Bitcoin Layer 1 via Runes and Bitcoin Layer 2 via Stacks.

We will evaluate potential expansions as new L1 and L2 solutions develop on Bitcoin and other blockchains.

Q. Has Hermetica been audited?

Yes. Hermetica is security-first and dedicated to maintaining highly secure and professionally audited smart contract infrastructure.

To this end, we conduct regular comprehensive security audits with independent third-party services, like Clarity Alliance and Strata Labs. Hermetica ensures that its infrastructure remains resilient against an evolving security threat landscape.

Q. How does Hermetica mitigate risk?

Hermetica’s products are built on trust-minimized infrastructure that allow Hermetica to bridge CeFi liquidity into DeFi with minimum counterparty risk and maximum security.

Hermetica employs mitigation strategies for all identified risks. For more detailed information, please refer to the Hermetica Risk Disclosures or review the risk FAQs below.

How does Hermetica mitigate custody risk?

Bitcoin collateral, which backs USDh, is held across multiple established, institutional-grade custody providers. This diversification minimizes the impact of any single custodian’s failure, such as bankruptcy or a security incident, ensuring the overall safety of collateral.

According to data from Into The Block, there is a ~4% annual risk of total fund loss when holding assets in smart contracts. Institutional-grade custodians, on the other hand, have not suffered any hacks or loss of customer funds since their inception.

How does Hermetica mitigate collateral management risk?

Hermetica's operations rely on maintaining a fully hedged position for USDh liabilities. The protocol couples spot BTC holdings with a short perpetual futures position. This position is considered delta-neutral because it is fully hedged – as a result, the underlying position is stable in dollar terms.

Advanced risk engines continuously monitor and reconcile liabilities against assets every 100 milliseconds. This means every 100 milliseconds assets are compared against liabilities to ensure the position remains fully hedged. Multiple engines are deployed across different geographic locations and cloud providers to reduce the risk of operational or third-party failures.

How does Hermetica mitigate exchange risk?

To hedge USDh, Hermetica uses centralized derivatives exchanges. The risks of exchange failures, such as bankruptcy or hacking, are mitigated through off-exchange settlement (OES) systems offered by the institutional-grade custodians used by Hermetica. The OES custodians allow Hermetica to mirror funds to exchanges in order to trade without the funds ever being exposed to the exchanges’ balance sheet.

In addition, any potential losses from unsettled trades are covered by the Hermetica Reserve Fund and hedging is diversified across multiple exchanges to reduce reliance on any single platform. Read more here.

How does Hermetica mitigate liquidity risk?

Hermetica mitigates liquidity risk by actively monitoring the capacity of derivative markets to handle the trades needed to hedge USDh. If market liquidity is low—meaning there aren’t enough buyers or sellers to execute trades efficiently without significant price disruption—Hermetica may temporarily restrict the minting of new USDh tokens to protect the system.

How does Hermetica mitigate funding rate risk?

The yield on sUSDh depends on positive funding rates. To manage the risk of negative funding rates, particularly during market downturns, the Hermetica Reserve Fund steps in to cover losses. This fund grows over time by allocating a portion of positive funding gains, ensuring it remains robust against prolonged negative funding periods.

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

The 'h' stands for both Hermetica and hedged - a reference to the underlying mechanics of USDh.