Author: Zennon Kapron, Forbes Contributor
Compiled by: AididiaoJP, Foresight News
When Congress drafted the GENIUS Act, it drew a clear line for stablecoins: licensed payment stablecoin issuers are prohibited from paying any form of interest or yield to holders. This clause (Section 4(a)(11)) forced Circle and Coinbase to fundamentally adjust how USDC holders earn yields.
Meanwhile, the fastest-growing yield-bearing dollar in crypto—Ethena's USDe—has completely bypassed this clause.
USDe's Core Mechanism and the Regulatory Gap
USDe does not hold cash or Treasury bonds. It is a delta-neutral synthetic dollar: the protocol accepts crypto collateral while simultaneously opening hedged perpetual futures short positions, thereby keeping the dollar value relatively stable while earning yields from the positions. By staking USDe as sUSDe, you receive this yield.
Because its underlying mechanism is hedged derivative trading rather than fiat reserves, USDe does not meet the legal definition of a payment stablecoin. Therefore, the ban in the GENIUS Act that reshaped USDC does not apply to USDe at all.
The result is a regulatory gap containing tens of billions of dollars—and still growing—while policy discussions remain focused on stablecoins that comply with the new rules.
From Niche Product to Top Three
This is not a niche product. In 2025, USDe's supply peaked at over $14 billion, accounting for about 5% of the entire stablecoin market. CoinDesk already called it the third-largest dollar-denominated crypto asset at the time. After deleveraging in October 2025, the supply contracted to about $5.9 billion, where it remains today.
Even at a reduced scale, it remains the only non-fiat-reserve stablecoin ranking among the top. All other dollar stablecoins of comparable size are reserve-backed coins holding cash and government bonds. USDe is essentially a trading strategy that incidentally mints a token.
In January 2026, it partnered with Kraken to introduce custodianship and provide weekly proof-of-reserves, further solidifying the credibility aspect that basis trading alone cannot fully provide.
Where the Yield Actually Comes From
The yield comes from one of the oldest derivative structures—the cash-and-carry basis trade. When the perpetual funding rate is positive, longs pay shorts, and USDe's hedged short positions profit from this, combined with the staking yield from the collateral.
Ethena describes it as the funding rate and basis spread generated from delta-hedged derivatives; CoinDesk puts it more bluntly: USDe generates yield by harvesting the funding rate. In early 2026, the annualized yield for staked sUSDe was around 4%.
This is precisely the legal core of the design: the issuer is not paying interest on reserves (which the GENIUS Act prohibits). Instead, a strategy is generating returns, and the token merely passes them on—something the GENIUS Act never addressed.
This technical distinction, subtle as it sounds, constitutes the entire boundary between regulated and unregulated products.
The Definition Not Covered by the GENIUS Act
The GENIUS Act only regulates payment stablecoins, requiring 1:1 fiat or Treasury reserves and mandatory monthly disclosures. USDe completely fails to meet these requirements and never attempted to.
Ethena's response to the US market was to launch a second, separate product: USDtb—a fiat-backed stablecoin issued in partnership with Anchorage Digital, fully compliant with the GENIUS Act, primarily backed by BlackRock's tokenized money market funds.
Thus, Ethena simultaneously operates two types of dollars: one is a compliant, non-yield-bearing payment stablecoin; the other is a yield-bearing synthetic dollar.
The US Office of the Comptroller of the Currency (OCC) has noted this gap. Its March 2026 proposal attempted to extend the yield ban to affiliated parties and third parties, but even then, it mainly targeted situations where issuers pay yields through side doors. It clearly cannot cover instruments where "the issuer pays no yield, and returns come entirely from the market."
To truly fill this gap, regulators must define synthetic dollars as a separate category and regulate them, but no one in Washington has drafted that rule yet.
The Risks of the Basis Trade
The model has real failure modes, worth highlighting before USDe expands again: its strategy heavily relies on the funding rate remaining positive over the long term.
Ethena's own data shows that over three years, Ethereum positions had cumulative negative funding rates for 17.5% of the days, with the longest negative streak lasting 13 days, while the longest positive streak lasted 176 days. A reserve fund absorbs periods of negative yield, so stakers are not debited.
The real danger lies in a prolonged negative funding rate window coinciding with a system-wide DeFi leverage unwinding. The market flash crash on October 10, 2025, was a test, when USDe briefly dropped to $0.97, recovering within hours.
Reserve-backed stablecoins crash when the custodian bank or custodian fails; synthetic dollars crash when a crowded trade unwinds—this is a different and more concealed risk, and it can happen without anyone making a mistake.
Europe Says No, US Institutions Say Yes
Regulators are not in consensus. Germany's BaFin forced Ethena to shut down its local entity and banned public sales of USDe, citing suspected sales of unregistered securities and failure to meet MiCA reserve requirements. Ethena became the third stablecoin issuer pushed out of the EU.
Meanwhile, US institutional capital moved in the opposite direction. In June 2026, Janus Henderson, with approximately $480 billion in assets under management, partnered with Ethena to use USDe for treasury cash management, incorporate its tokenized AAA credit products into USDe's reserves, and plans to launch a regulated exchange-traded product in the second half of the year.
One major market treats this synthetic dollar as an unregistered security, while another integrates it into the infrastructure of a half-trillion-dollar asset manager. They cannot both be correct in the long run.
The Bull Case for Basis-Traded Dollars
The strongest bull case is that USDe has earned its current size on merit. It has maintained its peg through multiple cycles, its collateral is overcollateralized with external proof, and the yields it pays come from real markets, not subsidies the issuer must eventually stop.
The demand for yield-bearing dollars will not disappear just because Congress wishes it would. Pushing that demand offshore or into off-label products does not make it safer.
The issue is not that USDe is fraudulent, but that it is marketed alongside instruments it does not resemble at all, sharing the name "stablecoin," while the law has defined it as something else.
Treating USDe and USDC as interchangeable holders is essentially pricing a derivative position as a demand deposit account.
The GENIUS Act regulated one but left the other undefined, quietly fostering this confusion rather than clarifying it.
The GENIUS Act clarified what payment stablecoins are and what they cannot do, but it did not address tools that refuse that label. USDe is the largest of them. The open question for US regulators next is: will the next rule draw boundaries for synthetic dollars, or will yields continue to migrate anywhere outside the boundaries they have already drawn?
