Avalon Labs on Monday announced the launch of USDa, a Bitcoin (CRYPTO: BTC)-backed stablecoin designed to enable Bitcoin holders to unlock liquidity without selling their holdings.

The stablecoin, built on LayerZero’s cross-chain technology, aims to position Bitcoin as a source of liquidity within decentralized and centralized financial systems, rather than a passive store of value.

USDa provides Bitcoin holders with the option to collateralize their Bitcoin in exchange for stablecoin liquidity at a fixed borrowing rate of 8%.

This model allows Bitcoin holders to engage in yield-generating activities within DeFi protocols while retaining ownership of their Bitcoin, a feature Avalon Labs claims could address liquidity challenges in the broader Bitcoin market.

In an effort to ensure stability, Avalon Labs structured USDa’s supply to scale in proportion to Bitcoin collateral.

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This approach is intended to mitigate depegging risks and ensure USDa remains pegged 1:1 with USDT, though how it performs in fluctuating markets remains to be observed.

Additionally, Avalon Labs has partnered with custodians like Cobo, Ceffu and Coinbase Prime to offer publicly accessible custody addresses, aiming to provide transparency and security for institutional and retail users alike.

As the crypto industry continues to explore the potential of Bitcoin-backed instruments, experts are expected to discuss these developments at Benzinga’s Future of Digital Assets event on Nov. 19, where industry leaders will analyze the future of Bitcoin in both DeFi and CeFi frameworks.

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