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In the past 12 days, the stablecoin ecosystem has maintained a relatively consistent total value. However, significant changes have occurred in the supplies of dollar-pegged cryptocurrencies PYUSD from PayPal and USDE from Ethena. Over a span of 22 days, PYUSD’s supply surged by over 70%, while USDE experienced an 8.82% decrease in supply within the last 13 days.
Stablecoin Market Maintains Value Amid Supply Shifts
As of July 25, 2024, Bitcoin.com News reported that the stablecoin market was valued at approximately $164.68 billion, a figure that remains stable today. Nonetheless, Ethena’s fourth largest stablecoin, USDE, has recently taken a hit. According to Coingecko, USDE’s supply has fallen by 10.7%, with 8.82% of this decline occurring in merely the last 13 days.
USDE’s supply has contracted from $3.4 billion on July 24 to about $3.1 billion now, reflecting a decrease of around $300 million. The uptick in USDE redemptions coincided with a wave of volatility in the crypto market. In contrast, PayPal’s PYUSD has seen an impressive growth trend; its market cap is currently pegged at $651 million. The supply of PYUSD has been growing consistently, marking a notable divide in the performance trends of these two stablecoins.
PYUSD Surges by Over 70% in Just 22 Days
On July 15, 2024, PYUSD’s market valuation was approximately $382 million, indicating a staggering growth of 70.41% within the past 22 days. Currently, PYUSD ranks as the seventh largest stablecoin, closely trailing behind Tron’s USDD, which boasts a market cap of around $738 million. Should PYUSD surpass USDD in supply, the standings could see USDD drop to the eighth position. Ratings-wise, PYUSD holds an A- grade according to bluechip.org’s stablecoin metrics, while USDD is rated an F.
As it stands, Ethena’s USDE lacks a stablecoin rating on bluechip.org. The contrasting dynamics of PYUSD and USDE illustrate the volatile nature of the stablecoin market, emphasizing how swiftly shifts in supply and demand can lead to changes in market rankings. The ongoing volatility in the crypto market may direct participants to prioritize stablecoin stability and utility, influencing further adjustments in supply and capitalization in this sector.
USDE Faces Redemptions and Volatility Challenges
Ethena’s USDE, known as the “synthetic dollar,” has faced nearly $100 million in redemptions over the last few days during a significant market downturn, which has seen Bitcoin dip below the $50,000 mark and Ethereum lose its gains for 2024. This wave of volatility likely triggered the mass redemptions, thereby exerting pressure on the USDE protocol. On a particularly eventful Monday, over $1 billion in lending trades were liquidated on centralized exchanges, with an additional $400 million liquidated on decentralized finance (DeFi) platforms. This event represents one of the largest liquidation occurrences this year.
Despite these challenges, USDE successfully maintained its peg to the US dollar. Yet, its price experienced minor fluctuations, briefly reaching $0.997 before stabilizing back to approximately $1. Currently, the supply of USDE stands at over 3.1 billion tokens, reflecting a 50% increase from the 2 billion tokens available in April.
USDE’s Unique Mechanism and Cash-and-Carry Strategy
Different from conventional stablecoins, USDE employs a unique mechanism that does not depend on direct collateralization with fiat or tangible assets. Instead, it utilizes derivative hedging techniques, providing collateral through Ether and Bitcoin, along with an arbitrage system to facilitate issuance and redemption in order to sustain its dollar peg.
USDE also implements a cash-and-carry strategy to produce returns distributed to stablecoin holders. This strategy includes staking ETH sourced from users who mint USDE with Ethereum validators while simultaneously shorting an equivalent amount of ether futures. Recently, Ethena has expanded its collateral acceptance by allowing Bitcoin alongside Ether and liquid staking tokens for USDE issuance. Stay tuned for more updates on this evolving story on the Turkish NY Radio.
