Ethena's USDe Contracts Experience Significant Contraction Amid Rise of Dollar-Backed Stablecoins

As the demand for dollar-backed stablecoins grows, Ethena's synthetic stablecoin, USDe, has seen a notable decrease in its market capitalization.

Key Takeaways

Ethena's USDe stablecoin fell from a market cap of $9.3 billion on November 1 to $7.1 billion by November 30, resulting in a 24% decline in supply.
The decline follows a depegging event that saw USDe briefly drop to $0.65 due to an oracle issue on Binance.
Fiat-backed stablecoins saw an increase of $3.2 billion in November, with Tether's USDT growing to $184.6 billion and PayPal's PYUSD increasing significantly.
USDe now ranks fourth in the stablecoin market according to its total valuation.

Ethena’s synthetic USDe contracts sharply as dollar-backed stablecoins expand

Summary of Ethena's Recent Stability Issues

Ethena's synthetic USDe stablecoin faced one of its most significant contractions this month, coinciding with substantial inflows into established fiat-backed stablecoins such as USDT, USDC, and PYUSD. Despite these challenges, the overall stablecoin market remains largely dominated by US dollar-pegged assets.

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Recent data from CoinGecko indicates that Ethena's USDe stablecoin experienced one of the most significant monthly contractions on record, dropping from a market capitalization of $9.3 billion at the start of November to $7.1 billion by the end of the month. This reduction, which amounts to approximately $2.2 billion, translates to a 24% decrease in supply throughout November.

USDe is classified as a synthetic stablecoin, which maintains its dollar peg not by holding actual dollars but through crypto trading strategies and futures contracts. The outflows of USDe suggest users are either selling the token in the open market, withdrawing from liquidity pools, or closing out positions in decentralized applications (DApps).

As of late November, the overall market for stablecoins stands at $311 billion, with US dollar-backed stablecoins consistently dominating the landscape, accounting for $303 billion of this total valuation.

Ethena USDe stablecoin’s 30-day market capitalization chart. Source: CoinGecko

USDe's Contraction Follows October Depeg Incident

The contraction of USDe in November follows a depegging incident that occurred in October when the stablecoin briefly dipped to $0.65 on Binance due to a specific oracle issue unrelated to the asset's underlying collateral mechanism. Ethena founder Guy Young confirmed that the minting and redemption functions of USDe remained unaffected during this incident, with around 2 billion tokens redeemed across various decentralized finance (DeFi) platforms.

Prior to the depeg, USDe's market cap was approximately $14.8 billion on October 9, making it the third-largest stablecoin at the time. Since then, the stablecoin has lost over 53% of its market cap, now valued at $6.9 billion and positioned fourth in stablecoin rankings according to CoinGecko data.

Related: Lawmakers face challenges defining stablecoin terminology as US Congress questions Fed's Bowman.

Rise of Fiat-Backed Stablecoins in November

While Ethena's USDe struggled, the landscape for fiat-backed stablecoins showed positive growth during November. Tether's USDT increased by $1.3 billion, bringing its total market cap to $184.6 billion, while Circle's USDC rose to $76.5 billion, adding around $600 million. Furthermore, PayPal's PYUSD showcased the most impressive growth among major dollar-pegged stablecoins, surging from $2.8 billion to $3.8 billion with a substantial inflow of $1 billion, which represents a 35% increase month-on-month.

Data from DefiLlama highlights that PayPal's PYUSD has grown over 216% since September, up from a market cap of $1.2 billion to its current level, demonstrating a remarkable $2.6 billion increase in just three months.

Source: DefiLlama

Additionally, Ripple's stablecoin, which crossed the $1 billion market cap threshold for the first time in November, continued its upward trend, rising from $960 million on November 1 to $1.26 billion by November 30—an increase of $300 million.

Magazine: China officially denounces stablecoins, while DBS engages in Bitcoin options: Asia Express.