Ethena, the crypto company behind the successful stablecoin USDe, partnered with BlackRock and its USD Institutional Digital Liquidity Fund (BUIDL) to launch a new stablecoin called UStb that could heat up the already fiercely competitve stablecoin market.

The announcement comes at a point when stablecoins are attracting scrutiny from regulators and experiencing rapid growth as a blockchain-based alternative to the US dollar.

Similar to other dollar-pegged cryptocurrencies, the UStb token will be valued at $1 and should maintain that value at all times. To achieve this, Ethena will back every UStb token in circulation with investments in BlackRock’s BUIDL fund, which primarily holds a basket of short-term securities like Treasury bills, cash, and repurchase agreements.

BlackRock’s credibility as the world’s largest asset management firm should immediately give UStb a reputation for robustness and safety that other tokens in the space lack. However, crypto investors who value decentralization may not like buying a crypto tied to the largest financial institution in the world.

Ethena claims that UStb will have no direct link or association with USDe, which has an entirely different risk profile. As a “wholly independent product”, Ethena aims to list it on centralized exchanges like Bybit and Bitget soon. Investors will be allowed to use UStb as collateral for their margin accounts.

BlackRock’s Partnership with Securitize is Already Yielding Positive Results

BlackRock has been getting increasingly involved in the blockchain industry. The launch of BUIDL in collaboration with Securitize to support the creation of synthetic assets like UStb marked a significant milestone for this initiative.

In May this year, the asset management giant led the latest funding round of this blockchain company where it raised $47 million from other prominent investors as well like Paxos and Circle.

The fund had reportedly attracted over $500 million in assets since its launch in March this year. The BUIDL token lives on the Ethereum blockchain and is pegged to the US dollar as well. It pays dividends daily to investors derived from its portfolio of short-term investments.

Ethena’s decision to rely on BUIDL investments to back UStb’s reserves can be interpreted as a strategic move to offer a regulatory-friendly stablecoin that may successfully attract large institutional investors by implicitly leveraging BlackRock’s credibility.

Ethena’s USDe is Already the 8th Largest Stablecoin

usde from ethena becomes 8th largest stablecoin

Ethena has already proven that it can launch and manage successful products in the blockchain space as USDe has already jumped to the top of the crypto ranks by market capitalization.

According to data from CoinMarketCap, USDe’s total current circulating supply is valued at nearly $2.6 billion, making it the eighth-largest stablecoin in the space. This token is backed by an arbitrage strategy that uses staked Ethereum (stETH).

Unlike UStb, USDe is an algorithmic stablecoin. Hence, its risks are likely higher compared to asset-backed stablecoins like the popular Tether (USDT) (though Tether is a bit shady anyway). During the recent market downturn, the value of USDe depegged from the US dollar briefly – yet mildly – and traded at $0.997 at some point.

The depegging event occurred as the token faced $100 million in redemptions in a relatively short period.

The introduction of UStb is seen as a way to complement USDe and potentially mitigate some of the risks associated with synthetic stablecoins. By offering two distinct products with different risk profiles, Ethena aims to cater to a broader range of users and use cases in the digital asset space.

BlackRock Believes in the Potential of Tokenized Assets

BlackRock’s projections regarding the blockchain industry are quite positive. Its influential Chief Executive Officer, Larry Fink, has stated publicly that he believes in the power of tokenization to revolutionize Wall Street.

He believes that synthetic tokens could be used to create markets and generate liquidity for alternative assets like private equity, hedge funds, pre-IPO stocks, and commodities.

“At BlackRock, we believe that tokenization has the potential to drive a significant transformation in capital markets infrastructure,” commented Joseph Chalom, global head of strategic partnerships at the asset management giant in a recent interview with Fortune Magazine.

“Our investment in Securitize is another step in the evolution of our digital assets strategy,” he added.

Research from Chainlink revealed recently that the value of these synthetic blockchain-based assets has already surpassed $120 million. Ethereum is the most popular blockchain used for these assets with a market share of 58% at the moment.

Meanwhile, a report from the Boston Consulting Group also unveiled the significance of the opportunity that BlackRock is apparently seizing by stating that “the total size of illiquid asset tokenization globally would be $16 trillion by 2030.”

Stablecoins Could Endanger the Fed’s Control Over the US Dollar if They Get Big Enough

The US dollar’s dominance in the global forex market may be strengthened by stablecoins but these synthetic assets also bring significant risks to the table as they operate outside of traditional banking systems and hardly comply with anti-money laundering (AML) protocols.

Experts have emphasized that the proliferation of dollar-pegged stablecoins could have implications for the US monetary policy efforts. The higher the market value of these tokens is, the more difficult it could be for the Federal Reserve to maintain control over the dollar’s supply and demand.

Meanwhile, the involvement of large financial institutions like BlackRock signals an increasing interest in the space that could rapidly propel the market value of these assets if they become widely embraced and adopted by corporations and institutional investors as a blockchain-based alternative to the US dollar.

It is worth noting that blockchain transaction costs are way lower than traditional bank fees. The cost of sending a wire transfer overseas can be heavily reduced by using stablecoins like USDT and UStb and the transaction is typically executed instantly and credited to the other party’s account with the need for an intermediary.

BitGo and Coinbase Launch Stablecoins Covering the US Dollar and BTC

Competition in the stablecoin market seems to be heating up. Despite the collapse of some prominent tokens like Terra’s UST two years ago, new projects have emerged with new value propositions that have enticed the crypto community.

One example is USDS, a new stablecoin launched by BitGo that will hit the markets in January 2025. Meanwhile, Coinbase, the largest crypto exchange in the US, also launched a product called “Wrapped Bitcoin” whose value is pegged 1:1 to BTC.

“The stablecoin market has long been dominated by players who prioritize profits over ecosystem growth,” BitGo said about its upcoming product. They claim that the token will be backed by liquid reserves but did not provide details about which accounting firm will be auditing its assets.

Also read: What is Terra LUNA? Why did it Crash 99.9%?

This was seen as a response from Coinbase to BitGo’s existing offering of WBTC – the most used wrapped Bitcoin token in the space.

That said, the stablecoin market continues to be dominated by a few key players, with Tether and USDC currently standing as the third and sixth largest cryptocurrencies by market cap, respectively. The sheer size and popularity of USDT are illustrated by its 24-hour trading volume, which exceeds $38 billion across exchanges. This figure is even higher than Bitcoin’s $33.9 billion daily volumes according to recent data from CoinGecko.

The launch of UStb represents a significant milestone in the adoption and embracement of stablecoins by well-established players in the financial industry. By combining Ethena’s expertise in creating successful stablecoin products with BlackRock’s credibility and the security of the BUIDL fund, UStb has the potential to create a new standard of safety in the stablecoin market.

Collaborations between traditional financial institutions and crypto-native companies may emerge more frequently moving forward as these partnerships have the potential to bridge the gap between traditional finance and the world of cryptocurrencies. This could result in greater and faster levels of adoption and integration of digital assets into the financial system.

The success of UStb will depend on the market’s rate of adoption of the product, any regulatory developments that may affect stablecoins, and its ability to maintain its 1:1 peg to the US dollar in various market conditions.