Lido and BadgerDAO collaborate to introduce stablecoin pegged to Bitcoin.
BadgerDAO, a well-known player in the decentralized finance (defi) sector of Bitcoin (BTC), has announced a partnership with Lido, a leading provider of liquid staking solutions on the Ethereum network.
In a press release received by crypto.news, BadgerDAO revealed the launch of a new eBTC system that allows users to secure loans without incurring any interest, repayment, or initiation fees. The protocol achieves this by utilizing Ethereum collateral and staking it with Lido to generate staking rewards. This innovative approach potentially provides a more cost-effective borrowing option.
The primary objective of the protocol is to enhance existing wrapped Bitcoin assets by leveraging staked ETH (stETH) from Lido. Additionally, it aims to eliminate the need for cross-chain bridges by introducing a new collateralization method.
The eBTC system also addresses risks associated with bridges by offering customizable collateralization ratios. Moreover, it implements mechanisms to liquidate positions if the collateral value falls below the required threshold, which is set at a minimum of 110%.
As part of the partnership, Lido’s Liquidity Observation Lab (LOL) is offering an incentive program that grants additional stETH rewards to early adopters of eBTC. These rewards are distributed without any fees, encouraging users to engage with the system early on.
Lido is the dominant player in the Ethereum staking scene, with a total value locked (TVL) of $35.12 billion, according to DeFi Llama data. On the other hand, BadgerDAO leads the Bitcoin defi sector with $3.5 billion in BTC deposits.
Despite the innovative nature of the eBTC system, users still face inherent challenges and risks within the synthetic stablecoin and defi ecosystem. Regulatory uncertainties, counterparty risk, and volatility are important factors to consider.
The defi market has also encountered vulnerabilities, such as smart contract exploits and market manipulations, which have posed threats to the stability and security of protocols. For example, SushiSwap suffered a $3.3 million loss due to a smart contract incident in April last year. In 2022, the defi sector suffered a total of $2.7 billion in losses from smart contract hacks.
In summary, BadgerDAO’s partnership with Lido introduces the eBTC system, allowing users to secure loans without fees by leveraging Ethereum collateral and staking it with Lido. While the system offers a more cost-effective borrowing option, users should remain cautious of the risks and challenges associated with the defi ecosystem.
