How to unlock over 10% yield using USDe/USDtb Spread Arbitrage strategy on Bybit

Stablecoins have been an essential part of the cryptosphere for more than a decade. Backed by collateral or algorithmic mechanisms and pegged to an established traditional finance asset, often the US dollar, they offer rate stability in the turbulent world of cryptocurrency. Traditional stablecoins, however, don’t generate yields. Their real value erodes over time due to inflation. Yield-bearing stablecoins have entered the market in recent years to combat this issue.

Yield-bearing stablecoins feature an operational mechanism that allows them to stay pegged to a traditional asset and generate returns on the principal amount. This enables crypto investors to enjoy low-risk returns on their investments.

The yield-bearing nature of these assets also opens up a way to optimize their returns via spread arbitrage, particularly the leveraged version.

In its most basic form, leveraged spread arbitrage allows you to profit from the difference in borrowing and earning interest rates. Bybit offers a great way to earn higher stablecoin yields using this technique. You can borrow funds at lower interest through the margin trading option in your account by using your USDT or USDC principal and invest the borrowed amounts for interest in USDe or USDtb, two yield-bearing stablecoins offered by one of the leading decentralized finance (DeFi) protocols, Ethena (ENA).

Key Takeaways:

• Spread arbitrage trading involves earning returns from a positive difference between the yield rates of your leveraged investment and your borrowing costs.

• Bybit offers you a way to use leveraged spread arbitrage to earn higher returns by borrowing yield-bearing stablecoins like USDe and USDtb against your initial collateral in traditional stablecoins — USDT and USDC.

What are USDe and USDtb, and why do they offer high yields?

The Ethena protocol is among the leading providers of yield-bearing stablecoins in the crypto market. The project’s first and best-known stablecoin, USDe, is an algorithmic crypto pegged to USD that uses delta-neutral hedging strategies, mostly through perpetual futures contracts, to generate yield. ENA calls USDe a synthetic dollar. Thanks to its yield-bearing properties, USDe has been a tremendous market success. As of late May 2025, it ranks fourth among all stablecoins by market cap.

Following the success of USDe, ENA launched USDtb, another dollar-pegged yield-bearing stablecoin. Unlike USDe, USDtb isn’t based on algorithmic trading strategies. Instead, it is indirectly backed by high-grade, low-risk traditional assets. USDtb is directly based on BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL), which invests in US treasury bills, repurchase agreements and other cash equivalents. As BUIDL generates yield from these assets, it flows over to USDtb, delivering low-risk, institutional-grade returns for the stablecoin’s holders.

While USDe and USDtb feature different models for generating returns — the former via active decentralized trading strategies and the latter via the backing of traditional assets — they are both known as yield-bearing assets. Their typical annual yields range from around 4% to 15%, depending on market conditions.

Spread arbitrage opportunity through interest rate gaps

Spread arbitrage is a trading technique that allows you to earn returns using the difference between borrowing and investing interest rates.

Using spread arbitrage at the most basic level involves borrowing funds at X% APR and investing them in a financial product that generates Y% APR. You earn a profit when Y is larger than X.

USDe and USDtb offer healthy yield opportunities and, under favorable market conditions, can generate yields that may exceed borrowing rates for assets like USDT and USDC. This creates opportunities for spread arbitrage using a combination of these stablecoins.

For instance, you may borrow USDT/USDC for margin trading via your Bybit Unified Trading Account (UTA). You can then buy USDe/USDtb with your borrowed funds to enjoy a potential rate difference between their yields and the interest you pay on your borrowed USDT/USDC. Bybit regularly offers campaigns based on zero fees for swaps between key stablecoin pairs, potentially making your entire spread arbitrage process even more cost-efficient.

How spread arbitrage works

An example of a simple version of spread arbitrage involves swapping your USDT/USDC funds to USDe and earning stable returns. This scenario assumes no leverage and, therefore, no borrowing interest to pay. While this is a great way to earn low-risk returns from USDe, it doesn’t maximize the spread arbitrage strategy’s potential.

A more advanced version that delivers potentially higher returns is via the use of leverage. This involves borrowing funds in USDT, or preferably in USDC, which usually features lower borrowing interest, and investing the borrowed funds along with your own principal in USDe to boost the total yield from the stablecoin. For instance, if the USDC borrow rate is 4% and USDe’s APR is 5%, the difference in the rates, 1%, represents your profit.

Step-by-step breakdown

Let’s review a typical example of how you can benefit from leveraged spread arbitrage, assuming your initial capital is 1,000 USDT and the leverage ratio is 6x.

1. Initial capital

You start with 1,000 USDT of your own crypto funds.

2. Apply leverage (6x total exposure)

You then borrow 5,000 USDT, using your 1,000 USDT as collateral. This gives you 6,000 USDT of total capital to use for your spread arbitrage trading.

3. Execute arbitrage trade

You take the 6,000 USDT and convert it to USDe. For example, let’s assume that you can earn a USDe yield of 5% annually from the stablecoin — a relatively conservative estimate. Staking USDe on ENA may deliver much higher returns depending on market conditions and the protocol’s performance (USDe’s yield rate as of late May 2025 is 6.2%). Let’s also assume that your borrowed USDT has an interest rate of 3.73%.

4. Earn yield on USDe

With the assumed yield from USDe of 5%, you earn:

• 5% on $6,000 = $300 annually

5. Pay borrowing cost on USDT

Assuming the 4% interest rate on USDT, you must pay:

• 3.73% on 5,000 USDT borrowed = $186.50 annually

6. Calculate net profit

• $300 (earned) – $186.50 (paid) = $113.50 annual net profit

7. Return on original capital

Since you used $1,000 of your own funds:

• $113.50 ÷ $1,000 = 11.35% annual return

Key benefits

Performing spread arbitrage using USDe/USDtb on Bybit gives you multiple benefits:

• Higher passive income: An over 10% annual return rate can be an excellent outcome for someone holding funds in USDT or USDC. These stablecoins are known for their lack of native yield-bearing capacity and relatively low-earning APRs in the broader crypto market.

• One-time setup and no need for daily management: A great feature of this strategy is that there’s no need for daily monitoring and tracking. You simply conduct the swapping, margin borrowing and investing operations once, then sit back and watch your yield flow in.

• Helps unlock VIP perks on Bybit with less capital because of net asset borrowing: Using more funds than you own to conduct trading can be a great way to access VIP benefits on the Bybit platform.

How to execute spread arbitrage on Bybit

1. Open a UTA account (if you don’t already have one) and enable margin trading for USDe/USDtb, USDT and USDC.

2. Set USDe/USDtb, USDT and USDC as collateral.

For the website version, here are the relevant screenshots.

If you use the Bybit mobile app, refer to the screenshots below.

3. Deposit your USDT funds in your UTA account.

4. Go to margin trading, set 10x leverage, execute a trade to sell 4,000 USDC, or whatever amount you prefer to allocate to spread arbitrage, and borrow 4,000 USDT.

For the website version:

For the mobile app version:

5. Use the borrowed USDT to buy USDe. Since Bybit offers you a way to earn interest on USDe on the platform, simply hold the borrowed funds in your UTA account to start earning yield.

For the website version:

For the mobile app version:

6. Track your yields and repayments to see how your spread arbitrage is performing.

7. If you decide to stop using spread arbitrage, simply sell USDe and repay USDC.

Risks of spread arbitrage

Naturally, just like any other trading strategy, spread arbitrage using stablecoins involves certain risks.

One is the depegging risk. If USDe falls below $1, you may incur magnified losses. For example, with a 5x leverage, a 1% drop in the stablecoin’s rate will result in a 5% total loss.

The negative carry risk is the second type of risk. If yields from USDe drop below the borrowing costs, the entire spread arbitrage strategy will result in a net loss.

Closing thoughts

Leveraged spread arbitrage using stablecoins is a great way to earn returns with manageable risk. It may be suitable for users comfortable and familiar with the use of margin; traders looking for alternatives to earning yield from staking, yield farming and similar DeFi strategies; and those who prefer more passive ways to generate yield from their funds.

However, this strategy is not particularly suitable for beginners, users not comfortable with leverage trading or those skeptical of synthetic stablecoins.

Disclaimer

The spread arbitrage strategy described above, along with the examples, does not constitute financial advice. Before applying this strategy in any form, do your own research and assess all the risks involved.

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