Bitcoin-Backed Stablecoin Reaches $100M: Here’s How It Works

• Avalon Labs launches USDa stablecoin. 
• USDa is overcollateralized with Bitcoin.
• USDa’s supply surpasses $100 million. 

Stablecoins are a growing segment of the crypto market. As an essential tool for crypto payments, stablecoins currently have almost $180 billion in market cap. However, almost since their launch, there has been debate on what stablecoins should be backed by. 

Beyond fiat-backed stablecoins and algorithmic stablecoins, Avalon Labs recently launched a new Bitcoin-backed stablecoin. This overcollateralized stablecoin reached $100 million just days after launch. 

How Avalon Labs’ BTC-Backed Stablecoin Works 

Stablecoins have entered the Bitcoin ecosystem. On Monday, November 11, Avalon Labs announced that their newly launched stablecoin surpassed the $100 million supply. USDa, valued at $1, is fully backed and overcollateralized by Bitcoin instead of fiat reserves. 

The token works by enabling users to mint Bitcoin when depositing USDa tokens. Users get half that value in USDa to maintain a 200% over-collateralization ratio. This means that currently, the $100 million USDa in circulation is backed by $200 million in Bitcoin. 

Over-collateralization aims to protect USDa’s value against Bitcoin’s market volatility and reduce the risk of de-pegging. In return for their Bitcoin, USDa holders get increased utility, including staking and access to DeFi markets. Moreover, users can deposit their USDa in return for sUSDa, a yield-generating token. 

Avalon Labs Attracts Users With Higher Yields

To help boost adoption, Avalon Labs introduced an appealing annual percentage yield (APY). Depending on market conditions and demand, the floating APY ranges from 20% to 50%. This boosted yield is valid for deposits up to $50 million. 

Users also get 3x point rewards, which means triple loyalty points for their Bitcoin deposits. These loyalty points can be redeemed for additional rewards, including lower transaction fees and early access to new features. Large users can even get governance privileges. 

Is USDa the Future of Stablecoins? 

USDa has seen significant growth since its launch, and its alignment with Bitcoin attracts an influential portion of the crypto market. However, the platform also faces potential risks. USDa’s growth is partially due to the high yields paid out from the company’s venture capital backing. Whether or not this growth is sustainable remains to be seen. 

At the same time, despite the over-collateralization, USDa faces risks from Bitcoin’s volatility. If Bitcoin drops significantly and stays below its current value, USDa could risk de-pegging. This means that the stablecoin would fall below its $1 value, undermining the confidence in the system.  

On the Flipside

• USDT currently holds the major share of the stablecoin market cap, with 69% dominance . 
• The recent significant increase in stablecoin liquidity is driving Bitcoin’s growth to $70,000. 

Why This Matters

USDa’s growth showcases interest in Bitcoin-backed stablecoins and their increased utility in the Bitcoin ecosystem. However, the platform also has risks due to Bitcoin’s significant volatility. 

Read more about crypto whales buying stablecoins: 
Crypto Whales: Why They’re Flocking to Stablecoins

Read more about a recent crypto extortion case: 
Tourist Loses 250K USDT in Thailand Extortion Case