Trustless cross-chain bridge Ren and permissionless synthetic asset platform UMA have teamed up to launch a Bitcoin-backed yield dollar called uUSD, in addition to a joint liquidity mining reward program.
The partnership will result in a product that allows investors to leverage Bitcoin permissionlessly on the Ethereum network. The uUSD is UMA’s second yield dollar product following an Ethereum-backed yield dollar called yUSD, launched in July 2020. The concept was highly successful with over 10 million yUSD minted over the past two months.
A yield dollar is similar to a stablecoin but with a few significant differences. It has an expiry date just like a futures contract, and as it nears that date the price will approach $1. Upon expiry, it will be redeemable for $1 of the collateral asset at the exact time of expiry. Uma describes it as representing “fixed-rate, fixed-term loan” since when they are minted, yield dollars are usually valued at less than $1.
Users will purchase renBTC, a tokenized Bitcoin competitor to wBTC, and lock it as collateral with UMA in order to mint uUSD tokens. These yield dollars can then be used to purchase more renBTC or for investment on other DeFi protocols.
In addition to the new yield dollar will be a joint Ren and UMA liquidity farming incentive to jump start collateral deposits. It will enable investors to earn UMA and Ren tokens for providing liquidity to the Balancer pool for uUSD which can be paired with USDC. The renBTC yield dollar features a 125% collateralization ratio which matures on October 1st.
To incentivize yield farmers, the pool will receive 10,000 UMA and 25,000 REN tokens per week, in addition to BAL tokens per the protocol’s calculations. The annual percentage rate is not fixed and will depend on how much liquidity is provided over the entire seven day period.
The offering is positive news for the rapidly growing wrapped Bitcoin market which allows yield farmers to put their BTC holdings to work on ERC-20 based protocols. Over the past three months the amount of Bitcoin tokenized on the Ethereum network has surged 1350% and currently stands at just below 78,000 BTC according to btconethereum.com. Of that total around a quarter, or 18,732, are renBTC.