"Synthetic Stablecoins Lose $2.2 Billion as USDT, USDC Gain Share"

The Dollar Is Crumbling. Fiat-Backed Stablecoins Are Next

Ethena's synthetic stablecoin USDe faced a 24% drop in supply in November 2025, shrinking from $9.3 billion to $7.1 billion in market cap. This outflow came as users redeemed approximately $2.2 billion in tokens amid heightened competition from fiat-backed stablecoins like Tether's USDT and Circle's USDC. The decline was attributed to market shifts and a depegging event in October that eroded user confidence.

In contrast, USDT and USDC saw steady inflows, with USDT alone adding $1.3 billion to reach a total of $184.6 billion. Ripple's RLUSD and PayPal's PYUSD also saw significant growth, with RLUSD surpassing $1 billion and PYUSD rising 35% to $3.8 billion. These figures underscore a broader trend favoring assets with regulatory clarity and direct dollar reserves.

The November supply drop was driven by redemptions from open-market sales, liquidity pool withdrawals, and DeFi position unwinds.

Ethena's synthetic model, which relies on crypto trading strategies and futures, proved vulnerable during volatile periods. The October depeg on Binance, where USDe fell to $0.65 due to a platform-specific oracle malfunction, further accelerated outflows.

Why the Standoff Happened

Ethena founder Guy Young attributed the October depeg to a technical glitch rather than systemic instability. He emphasized that the protocol maintained its collateral backing and allowed for smooth redemptions during the incident. Despite these assurances, the event raised questions about the reliability of synthetic stablecoins, which depend on derivatives rather than fiat reserves.

The decline in USDe's market cap reflected broader investor preferences for stability and transparency. Analysts noted that synthetic models face challenges in competitive environments, particularly when fiat-backed alternatives offer direct dollar parity and regulatory oversight. The 53% drop in USDe's value since October highlighted the fragility of these instruments in a rapidly evolving market.

How Markets Reacted

The broader stablecoin sector reached $311 billion in market cap by late 2025, with USD-pegged assets dominating at $303 billion. This growth came despite the contraction in synthetic stablecoins like USDe, as users prioritized assets with clear collateral structures. Emerging players such as PayPal's PYUSD and Ripple's RLUSD gained traction, with both crossing $1 billion in market cap.

Regulatory developments also played a role in shaping the market. The European Union explored consolidating crypto regulations, while the IMF issued a report warning of risks posed by stablecoins, including volatility, disintermediation, and currency substitution. These factors added to the pressure on synthetic models, which lack the same level of institutional trust as their fiat-backed counterparts.

What This Means for Investors

For investors, the trend toward fiat-backed stablecoins signals a preference for assets with clearer risk profiles. USDT and USDC's growth highlights the appeal of regulated, dollar-backed options during times of uncertainty. Analysts advised diversifying stablecoin holdings toward these assets to mitigate exposure to synthetic models like USDe, which face higher volatility and redemption risks.

The rise of institutional players in the stablecoin space also offers new opportunities. Bank of America and other major financial institutions are exploring their own stablecoin offerings, while smaller institutions like Minnesota's St. Cloud Financial Credit Union announced plans to launch proprietary tokens. These developments reflect a growing recognition of stablecoins' role in modern finance.

Investors should monitor regulatory shifts and market dynamics closely. The IMF and international regulators continue to scrutinize stablecoin risks, particularly around redemption rights and cross-border impacts. As the sector evolves, those who prioritize stability and transparency may find greater confidence in traditional fiat-backed options over synthetic alternatives.