USDe’s 177.8% Q3 Surge Surpasses Traditional Stablecoins, Highlighting Yield-Bearing Trend
Stablecoins, often referred to as the “digital dollar,” have seen a steady increase in issuance, with yield-bearing stablecoins offering interest payment features recently gaining popularity. While stablecoins were previously viewed solely as a global payment and remittance tool, they are now emerging as a financial investment instrument.
According to CoinGecko, a virtual asset market analysis firm, on the 2nd, the market capitalization of stablecoins reached $287.6 billion (approximately 413 trillion Korean won) in the third quarter of this year, marking an 18.3% ($44.5 billion) increase from the previous quarter and setting a new record high. Among these, Tether-issued stablecoin (USDT) and Circle-issued stablecoin (USDC), listed on the Nasdaq market, accounted for 85% of the market share, ranking first and second, respectively.
Notably, the market share of yield-bearing stablecoin USDe has grown, drawing attention in the virtual asset industry. Its market capitalization reached $14.7 billion in the third quarter of this year, a 177.8% ($9.4 billion) increase from the previous quarter, surpassing the traditional stablecoin USDS, which had previously held third place.
Yield-bearing stablecoins refer to coins that provide interest when purchased and deposited. This structure is similar to bank deposits, where depositing money earns interest. Yield-bearing stablecoins ultimately allow users to earn interest by depositing dollars, similar to dollar deposits. However, their advantage lies in saving on exchange fees.
Ethena, the issuer of USDe, offers an annual reward (interest) of 4.4% as of September 30th when stablecoins are deposited. PayPal, a global financial payment company, has also offered an annual reward of 3.7% since April for depositing its stablecoin PYUSD. The market capitalization of PYUSD in the third quarter of this year was $2.7 billion, a 155.9% ($1.5 billion) increase from the previous quarter.
The ability to earn interest does not change the fundamental structure of stablecoins. Issuers have historically generated profits by investing the dollars received from issuing coins into money market funds (MMF) or short-term U.S. Treasury bonds. However, some issuers have started sharing a portion of the earned interest with coin holders. This was a strategy to attract customers as the stablecoin market became dominated by USDT and USDC.
The virtual asset industry evaluates that the emergence of yield-bearing stablecoins has ushered in a new phase for the market. While the advantage of stablecoins has been their ability to facilitate global payments and remittances at low cost, they are now rising as an investment tool in themselves.
However, concerns are also growing. Extreme leverage strategies, where deposited stablecoins are used as collateral for loans to reinvest in yield-bearing stablecoins, are gaining popularity overseas. This could inadvertently highlight the risks of yield-bearing stablecoins, potentially dampening the growth of the market. Such extreme leverage structures can lead to uncontrollable losses if the value of stablecoins declines even slightly.
