Ethena and Bybit Collaboration Challenges Dominance of USDT and USDC in Crypto Market

• Traditional fiat-backed stablecoins like USDT and USDC may face a significant challenge due to the rising popularity of Ethena’s USDe.
• Ethena and USDe recently integrated with Bybit, a crypto exchange that allows perpetual trading.
• USDe, unlike other popular stablecoins, is a “synthetic dollar” backed by diverse assets, primarily staked ETH derivatives and short positions posted on centralized exchanges like Binance.

As Ethena’s USDe gains traction, traditional fiat-backed stablecoins like USDT and USDC may face a significant challenge. This article delves into the implications of Ethena and USDe’s recent integration with Bybit.

Ethena’s Partnership with ByBit

Ethena, the issuer of USDe, announced its partnership with Bybit on social media, highlighting the potential to transform the crypto trading landscape. The platform stated that traders could earn a yield on USDe, which can be used as collateral for futures trading. Additionally, Ethena noted that users can use their stablecoin in spot trading pairs like Bitcoin and Ethereum without paying fees.

Implications for USDT’s Dominance

While the partnership is bullish for ENA, Ethena’s native token, and could drive demand for USDe, some analysts express doubt. They argue that the deal constitutes a “direct” attack on the more dominant stablecoins, USDT and USDC, which traders widely use in almost all crypto perpetual trading platforms. The incentives offered by Ethena via the Bybit integration could potentially lure traders away from USDT and USDC. For instance, traders who traditionally earn nothing from perpetual trading will now receive a yield.

Challenges and Criticisms

This yield can be used to offset funding fees if traders choose USDe over USDT or USDC as their margin. With the current high double-digit yield standing at 15%, the decision to distribute “free money” for holding USDe could impact the dominance of USDT and USDC. However, some critics question the sustainability of the high yields and argue that the $10 million Reserve Fund set aside as a safety net may not be sufficient to prevent a depeg when yields fall.

Conclusion

As it stands, USDT is the third most valuable cryptocurrency after Bitcoin and Ethereum, with a market cap of over $111 billion. As crypto adoption increases and prices recover from the recent downturn, the stablecoin will likely solidify its position. On the other hand, USDe has a TVL of over $2.5 billion and over 175,000 holders. The future of these stablecoins will depend on market dynamics and the strategic moves of their respective platforms.