| The stablecoin market is pumping. So far this year, the total market value of all stablecoins in circulation rose almost 20% to about $242 billion, according to DeFiLlama data. One key reason for that is the likely advancement of a stablecoin bill in the Senate. Standard Chartered Bank sees the sector ballooning to $2 trillion within the next three years on the back of more supportive US legislation. Then there are the more esoteric drivers of stablecoin supply inflation. Namely: Ethena, a crypto project that oversees USDe, the fourth-largest among the crypto industry’s dollar surrogates. In addition to managing a reserve of cryptocurrencies, Ethena seeks to maintain USDe’s dollar-peg by “delta-neutral hedging” against those collateral assets. Shorting them, in other words, using futures and perpetual swaps — contracts that don’t have an expiry date. This mechanism is a version of the basis trade, which exploits differences in prices between spot and futures markets. And it helps the protocol to generate returns for holders. When crypto markets are booming and funding rates — the interest paid by bullish traders to take on leverage for futures bets — are high, USDe’s design can translate into sky-high yields for holders. But another result of Ethena’s financial engineering is heightened demand for USDT, the $148 billion stablecoin issued by Tether Holdings Ltd. Why? Because roughly 70% of the perpetual swap market in crypto is denominated in USDT, according to Ethena Labs Founder Guy Young. “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 said. What Ethena in effect offers then is a reward-bearing version of USDT “without many people realizing it,” Young added. Tether did not reply for a request for comment. Tether’s token isn’t the only dollar equivalent that might see some impact stemming from Ethena’s model. BlackRock Inc.’s tokenized money-market fund — which invests in cash, US Treasury bills and repurchase agreements — has roughly quadrupled its assets to $2.5 billion since early March, according to DeFiLlama data. On March 23, as assets in the BlackRock USD Institutional Digital Liquidity Fund, known as BUIDL, soared, Young said in a post on X that Ethena held roughly 60% of the fund and had accounted for almost all its growth in the previous three weeks. A representative for BlackRock declined to comment. “Ethena’s increasing brand recognition and traction gives it leverage over ecosystem partners,” sad Joshua Lim, head of markets at crypto prime brokerage FalconX. “It can allocate across various tokenized T-bill funds and liquid staking tokens for its reserve. And at the same time it has no trouble gaining distribution as eligible collateral and in trading pair listings across centralized and DeFi venues.” | 
