Want to easily achieve an annual stable return of 30%? This article teaches you how to perform basis arbitrage using USDe and USDC stablecoins.

Is on-chain operation too complicated? You can achieve a stable annual return of 30% on your 'U' through arbitrage with USDe and USDC on Bybit.

Written by: Route 2 FI

Translation: Little King

Note: This article is for translation communication only and does not constitute any investment advice. Related activities carry risks, please carefully consider investment risks.

Arbitrage Mechanism Overview

Do you know that you can perform circular arbitrage operations on the Bybit platform using USDT or USDC against USDe?

Although this strategy has not yet been widely disseminated, it can actually draw on the operational logic of the Aave platform to achieve interest rate arbitrage between stablecoins through Bybit's lending function.

The core of this strategy is: to borrow a stablecoin at a lower interest rate, and then exchange it for another stablecoin that can yield a higher return, thereby earning the interest rate differential.

The basic principle is that by holding USDe on Bybit, you can earn an annualized return of 10%, while being able to borrow USDC at a rate of 6%.

Let's get started directly.

First, you need a Bybit account that has completed KYC verification, and the account must have some USDT.

Bybit users can receive USDe rewards every day, which are directly credited to their Bybit accounts in the form of USDe, distributed daily at 6 AM UTC.

USDe has no holding limit, and users can buy and sell USDe through the zero-fee USDe/USDC spot market, or they can directly mint and redeem USDe.

The yield will be updated every Friday morning and will remain fixed for the following week. According to project rules, the USDe rewards may be lower than the advertised interest rate, but this has not occurred in the past six months, so we default to the advertised yield.

Bybit users can borrow USDC from Bybit at an hourly interest rate.

Operation Steps

Let’s illustrate how to conduct leveraged arbitrage with an example. Suppose the initial capital is 1000 USDT and the leverage multiplier is 6 times.

Initial Capital

Starting from 1000 USDT.

Borrow USDC

Ensure that the "Spot Margin Trading" feature is enabled, and that USDe, USDT, and USDC have all been set as collateral for the UTA account.

Using 1,000 USDT as collateral, borrow 5,000 USDC, and sell approximately 5,000 USDC in the USDC/USDT spot market on Bybit.

This provides a total of 6,000 USDT in funds available for arbitrage trading.

Exchange USDT for USDe

Exchange these 6,000 USDT into USDe through the zero-fee USDe/USDT spot market or the mint/redeem function.

Earn USDe Yield

Assuming the USDe yield is 10%, you will receive:

10% of 6,000 USD = 600 USD per year

Paying USDC loan costs

Assuming the USDC borrowing rate is 6%, you need to pay:

6% of 5,000 USDC = 300 USD

Calculate Net Profit

600 USD (revenue) - 300 USD (cost) = 300 USD net income per year

Original Capital Return Rate

Due to the use of 1,000 USD of own funds:

300 ÷ 1,000 = approximately 30% annualized return rate

Closing Position Operation

When the yield of USDe is lower than the borrowing cost of USDC, simply reverse the operation: sell USDe for USDC, then exchange USDC for USDT, or directly sell USDe for USDT.

Practical Operation Guide

First, you need to add USDT, USDC, and USDe as collateral.

Bybit operation screenshot

Enter the USDC/USDT spot margin trading interface, set 10x leverage, execute a sell transaction of 5,000 USDC, and borrow 5,000 USDT.

Use borrowed USDT to buy USDe.

The 5% borrowing rate comes from shorting the USDC/USDT spot margin trading pair.

The underlying logic is: assume starting with 1,000 USDT, borrowing 5,000 USDC and obtaining these assets.

Yes, on Bybit, you are engaging in margin trading of USDC/USDT. You can obtain a short position of 5,000 USDC with 1,000 USDT.

Now you have acquired assets worth 5,000 USDC, which can be exchanged for another asset, USDe.

So what risks are there here?

First is the negative interest rate risk. If the yield on USDe held on Bybit is lower than the borrowing cost of USDC, this arbitrage strategy will result in a net loss.

In addition, there are risks of USDe decoupling, centralized exchanges, remember the incident in February 2025 when Bybit was hacked and the liquidation risk, but USDe/USDT/USDC needs to decouple by 20% to trigger.

It should be noted that the SDe rewards and USDC borrowing rates are both floating, and the prices for opening and closing positions through spot or minting/redeeming functions are also variable.

Based on the prices from the USDC/USDT, USDe/USDT, and USDC/USDT spot order books, as well as the minting/redeeming fees, it may take a day's earnings to complete the opening and closing operations.

Conclusion

Bybit's trading volume is already large enough that the borrowing rates for USDT or USDC won't see significant changes.

Finally, it should be noted that the advantage of this strategy lies in the ability to operate with large capital. Compared to AAVE, if the Gas fee rises rapidly, each transaction can cost 200 USD, and it requires three transactions to establish a position, while the borrowing rate immediately becomes very high, leading to potential losses for this strategy almost from the first day.

According to the current borrowing rate, this strategy can yield a 30% return, while simply holding USDe only yields 10%.

But when the market is bullish, the demand for borrowing increases, and interest rates will rise.

The best time to make money with this strategy is to open a position when the spread between the USDe yield and the borrowing rates of USDT or USDC widens. Close the position when the spread narrows and wait for the next opportunity.

The following is the historical interest rate data for USDC and USDT on Bybit over the past 1.5 years.

The profit period of the USDC Arbitrage strategy can be seen below:

USDC interest rate chart

The following is the same analysis for USDT. It appears that borrowing USDC is more profitable than borrowing USDT. This may be because the liquidity for USDT trading pairs on Bybit is the highest, making it more meaningful to borrow USDT.

USDT Interest Rate Chart