Ethena and Tether: A Complementary Relationship
Guy Young, the founder of Ethena, recently took to the X platform to explain that Ethena and Tether complement each other rather than compete. In today’s cryptocurrency landscape, around 70% of perpetual contracts are settled in Tether’s USDT, which creates a unique interplay between the two platforms.
Every time a participant shorts through Ethena, it generates increased demand for USDT, as the counterparties need to utilize USDT as collateral to execute long positions. This setup suggests that for every dollar issued in USDe tied to these contracts, there is an approximate $0.70 rise in USDT demand.
Market Behavior and Demand for USDT
Interestingly, Young pointed out that Tether has no necessity to venture into yielding products. The existing market shows that traders are keen on using USDT as collateral and are willing to pay interest rates ranging from 10% to 30% annually to maintain long positions in perpetual contracts. Ethena essentially channels this existing demand into actionable strategies.
Challenges in the Crypto Landscape
Young also highlighted the extremes in crypto market behavior, where participants either chase the most liquidity or the best returns. As the landscape evolves and interest rates decrease, the once-lucrative middle ground—previously considered low-risk with modest returns—faces extinction.
For ongoing success, players in the trading sector are compelled to provide superior liquidity and distribution advantages compared to Tether, while those in the savings sector must offer returns that exceed what Ethena can present. Therefore, navigating this middle path is becoming increasingly unviable.
A Progressive Evolution in the Industry
In Young’s view, the partnership dynamics between Tether and Ethena represent a progressive evolution within the industry, which he describes as a ‘barbell strategy’, balancing the need for security and high returns amidst market demands.
