Ethena’s Synthetic Dollar Stablecoin Faces Supply Pressure as Fiat-Backed Rivals Grow The landscape of the stablecoin market shifted notably in November, with Ethena’s synthetic dollar offering, USDe, experiencing a significant contraction in its circulating supply. Data indicates that USDe’s supply fell by approximately 24 percent over the month. This decline coincided with substantial growth for several major fiat-backed stablecoins, which collectively added billions of dollars to their market capitalization. The contraction for USDe represents a reversal from its earlier rapid growth trajectory. The stablecoin, which operates on a synthetic model using cryptocurrency derivatives to maintain its dollar peg, saw its supply drop from historic highs. This reduction in supply suggests a shift in investor preference or a reaction to market conditions that may favor collateral types perceived as more traditional. In contrast, the month was marked by robust expansion for stablecoins backed directly by fiat currency reserves. Tether’s USDT, the market leader, continued its upward climb, adding several billion dollars to its supply. Its closest competitor, Circle’s USDC, also posted significant gains, further solidifying its recovery over the past year. The growth was not limited to the two giants. PayPal’s PYUSD and the newly launched RLUSD from banking institutions also saw their supplies increase, contributing to the overall expansion of the fiat-backed segment. Analysts point to a few potential factors behind these divergent trends. The broader cryptocurrency market rally in November likely increased demand for stablecoins as a means to facilitate trading and capture profits. This demand appears to have flowed primarily into the most liquid and established options, namely USDT and USDC. Their direct link to traditional bank reserves and cash equivalents often provides a perception of stability, especially during periods of market volatility or uncertainty regarding regulatory frameworks for algorithmic or synthetic models. Furthermore, the yield generated by USDe, derived from Ethereum staking rewards and futures market funding rates, has fluctuated. As these yields normalize or decline, the incentive for holders to maintain their positions may weaken, potentially leading to redemptions. The recent supply drop indicates that such dynamics may be in play. The stablecoin sector remains a critical infrastructure layer for the entire digital asset ecosystem, serving as the primary medium of exchange and store of value within crypto markets. The movements in November highlight the ongoing competition between different stablecoin designs. The synthetic model, championed by Ethena, offers a decentralized alternative native to the blockchain, but must contend with the immense network effects, deep liquidity, and user familiarity enjoyed by the large fiat-backed incumbents. This market activity underscores a period of evaluation for participants. While innovation in decentralized finance continues to produce novel stablecoin mechanisms, market share continues to consolidate around a few large players with straightforward fiat backing. The performance of USDe in the coming months will be a key indicator of whether synthetic stablecoins can maintain a substantial and stable role alongside their fiat-collateralized counterparts, or if they will remain a more niche product for specific DeFi strategies. The overall trend, however, is clear: the total stablecoin market is growing, with traditional fiat-backed options capturing the lion’s share of the new capital.
