Ethena Labs founder Guy Young has stated that its synthetic dollar, USDe, benefits leading stablecoin issuer Tether. In a post on X, Young noted that Ethena’s USDe is not a competitor to Tether’s USDT.
According to Young, the growth of Ethena actually benefits Tether because every unit of shorts that USDe adds to the market means a unit of USDT has to be created to match it. He said:
“For every unit of shorts Ethena adds to the market, a unit of Tether demand is created and is required to be long on the other side to match us. Or in other words, a $1 increase in USDe leads to a ~$0.70 increase in USDT when USDe is backed purely by perpetual positions in the collateral.”
Young’s statement is based on a post by the Plasma Foundation, noting that 70% of all perpetual swap volume is in USDT. Ethena uses a unique mechanism to maintain USDe peg to the dollar.
Unlike regular stablecoins, which usually have a reserve of several assets backing the tokens, USDe uses advanced trading strategies, including cash and carry trade, to maintain peg and still generate yield.
Interestingly, not everyone agrees with this opinion, with one user noting that traders use other assets as collateral apart from USDT. The user explained that there are instances where Ethena creating USDe might not increase the demand for USDT.
However, Tether CEO Paolo Ardoino appears to endorse the statement, as he quoted Young’s post and captioned it “Must read.”
Stablecoins can either focus on liquidity or yield
Meanwhile, Young noted that stablecoins cannot optimally offer liquidity while still guaranteeing high yields. According to him, crypto users calling for Tether to pay yield on USDT cannot get it because USDe already exists, and its synergy with USDT benefits Tether. In response to the question of Why doesn’t Tether pay yield? He said:
“Why would they when traders pay 10-30%+ annualised to long perpetuals with USDT collateral for them instead? Ethena is the conduit through which this is turned into a product for Tether.”
Young added that crypto users would have to pick a stablecoin that gives them liquidity and wide distribution or opt for one with yield, as they cannot get both in the same product. In his view, any crypto product trying to offer both will eventually lose relevance once rates decline. He said:
“The no man land of weak liquidity with risk free yield will become increasingly obsolete and fade into irrelevance as rates decline”
Thus, he emphasized that any stablecoin seeking to compete would have to aim for Tether’s liquidity and high distribution or try to beat Ethena’s returns on savings, as there is no middle ground.
USDT reaches new peak
Meanwhile, the discussion about the synergy between Ethena comes at a time when Tether USDT is reestablishing its dominance in the stablecoin sector. USDT supply recently reached $146 billion for the first time ever.
This milestone shows the sustained growth of the stablecoin despite increased competition from alternatives such as Circle’s USDC and others. USDC is the fastest-growing this year, with more than a 38% increase in supply.
However, USDT remains the biggest stablecoin, with 61% dominance in supply and 70% use rate for all perpetual swaps. Despite regulatory uncertainties around USDT in Europe and the US, the stablecoin continues to grow, especially in emerging economies.
Interestingly, Ethena’s USDe is now the third-biggest stablecoin by market cap, with $4.766 billion, beating out Sky (formerly MakerDAO) DAI and USDS stablecoins. However, it has seen over an 11% decline in supply over the past month.
