IN THIS ISSUE

🗳️ Custodial or Non-Custodial Yield?
🛡️  Custodian Attestations: August 2025
🪙 Stablecoin Supply Hits New ATH
💰 USDh Yield Recap
☎️ Hermetica Hangout
📈 Weekly Market Review

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Custodial or Non-Custodial Yield?

We want to know your preferred BTC yield product as we build for what matters most to users.

1. Custodial on Runes: 8–10% APY, simple swaps with BTC

2. Non-custodial on L2: 3–5% APY, deposit and withdraw with wrapped BTC

The discussion is still ongoing. Drop your pick and share how you see the future of BTC yield taking shape.

Custodian Attestations: August 2025

USDh’s August 2025 attestation is live.

Each month, we publish attestation reports confirming that every dollar of USDh is backed 1:1 by Bitcoin, held off-exchange in institutional custody.

In summary, as of the snapshot time:

󠁯•󠁏 USDh supply: $6,156,653.71
•󠁏 Copper custodied assets: $3,376,755.37
•󠁏 Ceffu custodied assets: $2,594,295.44
•󠁏 Redeeming Reserve Stacks: $168,359.64
•󠁏 Redeeming Reserve Ethereum: $17,830.92
•󠁏 Total backing assets: $6,158,726.10
•󠁏 Reserve Fund: $73,541.30
∘ USDC: $60,148.12
∘ USDh: $13,393.19
•󠁏 Total % of USDh: 100.99%

See the full breakdown of USDh’s Bitcoin backing, verified by Copper and Ceffu.

Stablecoin Supply Hits New ATH

DeFiLlama reports that the total global supply of stablecoins has surpassed $280Bfor the first time.

Stablecoins are foundational for holding value, enabling payments, and powering on-chain economies at scale.

Yield-bearing stables like USDh are also on the rise. Enjoy the first Bitcoin-backed stablecoin that earns yield and brings stability and utility to everyone in BTCfi.

USDh Yield Recap

This week, USDh yield came in at 12% APY.

TradFi makes you chase yield with paperwork, wait times, and hidden fees. USDh delivers it daily to your door.

Hermetica Hangout

Next week, we’re hosting Alpen Labs for a session on what they’re building for Bitcoin scalability.

We’ll dive deeper into Glock, their breakthrough for optimistic verification, and how it’s shaping the future of rollup-style Bitcoin Layer 2s. Set your reminder now.

Market Review

Bitcoin continues to decline, even after the dovish Fed news last Friday sent equities soaring to all-time highs. Bitcoin ranges between $110K and $120K, while altcoins, led by Ethereum and Solana, drive a drop in Bitcoin dominance.

Altcoin market caps climbed from $1.54T to $1.59T this week, while Bitcoin dominance dropped 1.17%, extending a nine-week downtrend after a three-year rally that lasted through June.

• DVOL ranges between 34 and 40

• The average equal-weighted futures basis spread is up 0.43% APR to 8% APR

• The futures curve remains very flat

• Perpetual futures (perps) funding rates peaked at over 42% on Saturday

The moving averages (MA) in Figure 1 are:

• Current Price: $111,200

• 7-Day MA:  $112,300 

• 30-Day MA: $115,400

• 180-Day MA:  $102,000

• 360-Day MA:  $93,400 

• 200-Week MA: $52,000

Bitcoin is below both the 7-day moving average (MA) and the 30-day MA, risking a break in its bull trend if it stays there. Relative strength in altcoins signals demand moving up the risk curve.

Trend Following

Returns for a Bitcoin 7-day and 30-day long trend-following portfolio are down 7.52% from January’s ATH. The portfolio was only long on Sunday and Monday this week, where it lost 2%. Current price action is extremely challenging for quantitative trend strategies. Low liquidity has made Bitcoin highly vulnerable to sharp rallies and sell-offs, causing random noise to trigger false signals in quantitative systems. In high-liquidity markets, such noise would stay below trigger thresholds. Bitcoin trend strategies are challenged as prices stagnate between $110,000 and $120,000.

BTC ETF Flows

Net inflows totaled $544M this week, up $1.71B from last week’s $1.17B in net outflows. Ethereum ETF inflows continue to outperform Bitcoin, with $1.59B in net inflows this week.

Volatility

Bitcoin’s implied volatility (DVOL) bounced off early August lows of 34.35% to 38.43% but remains at levels not seen since September 2023. Low implied volatility could indicate weak demand or that market makers are already hedged.

TradFi Bitcoin products like BTC ETFs and Bitcoin portfolio companies are increasingly selling call options for yield, creating systematic downward pressure on options prices and implied volatility. Yield Max’s $MSTY, for example, sells $4.5B in notional calls on Strategy (formerly MicroStrategy) stock monthly and quarterly. Hedge funds are running similar trades on miners and Bitcoin ETFs. Market makers buy these calls and resell on Deribit, keeping DVOL capped even as rising prices would normally force delta hedging. This systematic selling makes calls and puts underpriced relative to realized volatility, with at-the-money calls especially cheap after recent price drops.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities. The average (equal-weighted) basis spread was up 0.43% APR, from 7.57% APR to 8% APR.

The futures curve is in a flat inverted contango, with the front month trading above later maturities and the front week trading below all others. The spread between the lowest- and highest-yielding maturity is 0.86%.

Deribit’s Bitcoin futures curve is indirectly suppressed by TradFi call selling, as it reduces market maker demand for delta hedges. Futures volume is 50% lower than it was in December, despite the increase in spot price.

Macro

Macro conditions are optimistic as Federal Reserve Chairman Jerome Powell announced significant changes to the Fed’s policy framework.

On August 22nd, Federal Reserve Chairman Jerome Powell delivered a speech outlining updates to the Fed’s monetary policy framework. The new framework abandons the strategy of targeting inflation moderately above 2% to compensate for past shortfalls. Chair Powell acknowledged that real-time assessments are inadequate for accurately measuring the natural rate of employment, making it difficult to determine when the economy is at its “maximum rate.” The revisions favor flexible inflation targeting and a balanced approach, allowing the Fed to cut rates even when employment is high.

The European Central Bank (ECB) cut rates by 25 bps on June 6th but has not made additional cuts since then. The Swiss National Bank cut rates by 25 bps to 0% in June, while the People’s Bank of China (PBOC) left rates unchanged. The Bank of England (BOE) cut rates by 25 bps on August 7th, and the Bank of Australia cut rates by 25 bps on August 12th. Britain and Australia remain the only major central banks to lower rates since June.

The Dollar Index ($DXY), which tracks the US dollar against a basket of currencies, is at 97.88 as of Thursday evening, near three-year lows. DXY saw a minor sell-off this week, though it has not shifted the DXY out of its current range.

30-year Treasury yields reached 5.15% on May 22nd, the highest level since the end of the rate-hiking cycle in 2023. Rates are currently at 4.91%, remaining near multi-year highs. During Q2 and early Q3, long-term Treasury yields rose while $DXY weakened, suggesting foreign investors were diversifying away from US markets. However, recent announcements indicate that this trend may be reversing.

Historically, $DXY and US Treasury bond yields have maintained a strong positive correlation. Figure 8 illustrates the strong relationship between the relative value of the dollar ($DXY) and US Treasury bond yields.

Both equity market implied volatility (VIX) and US Treasury bond implied volatility (MOVE) are near their long-term steady states. The impact on equity IV from the Middle East conflict was mild, and when it ended, the VIX fell to new lows. The VIX is currently 14.44, down from last week’s 16.59, while the MOVE index is currently 77.55, down from 82.52.

Sincerely,
The Hermetica Team