Author: Zennon Kapron, Forbes Contributor
Compiled by: AididiaoJP, Foresight News
When Congress drafted the GENIUS Act, it drew a clear red line for stablecoins: licensed payment stablecoin issuers must not pay holders any form of interest or yield. This provision (Section 4(a)(11)) forced Circle and Coinbase to completely overhaul the way USDC holders earn yield.
Yet the fastest-growing yield-bearing dollar in the crypto space – Ethena's USDe – completely sidesteps this clause.
The Core Mechanism of USDe and the Regulatory Gap
USDe does not hold cash or treasuries. It is a delta-neutral synthetic dollar: the protocol accepts crypto collateral and simultaneously opens hedged short positions in perpetual futures, thereby keeping the dollar value relatively stable while earning yield from the positions. By staking USDe as sUSDe, you receive this yield.
Because its underlying structure is a hedged derivatives trade rather than fiat reserves, USDe does not meet the statutory definition of a payment stablecoin. Therefore, the ban in the GENIUS Act that reshaped USDC does not apply to USDe at all.
The result: a regulatory gap holding tens of billions of dollars, still growing, while policy discussions remain fixated on stablecoins that follow the new rules.
From Niche Product to Top Three
This is not a niche product. At its peak in 2025, USDe's supply exceeded $14 billion, accounting for about 5% of the entire stablecoin market, and CoinDesk already called it the third-largest USD-denominated crypto asset at the time. After deleveraging in October 2025, its supply contracted to about $5.9 billion, where it remains today.
Even at this reduced size, it remains the only top-tier stablecoin without fiat reserves. All other USD stablecoins of comparable size are reserve-backed coins holding cash and government bonds. USDe is essentially a trading strategy that coincidentally mints a token.
In January 2026, it partnered with Kraken to introduce custody and provide weekly reserve proofs, further solidifying the credibility that basis trading alone could not fully provide.
Where Does the Yield Actually Come From?
This yield comes from one of the oldest derivative structures—the cash-and-carry basis trade. When perpetual funding rates are 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 by delta-hedged derivatives; CoinDesk puts it more bluntly: USDe generates yield by harvesting funding rates. In early 2026, the post-staking sUSDe APY was around 4%.
This is the legal heart of the entire 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 the GENIUS Act Didn't Cover
The GENIUS Act only regulates payment stablecoins, requiring 1:1 fiat or treasury reserves and mandating monthly disclosures. USDe meets none of 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 and primarily backed by BlackRock's tokenized money market funds.
Thus, Ethena simultaneously operates two dollars: one is a compliant, non-yield-paying payment stablecoin; the other is a yield-paying synthetic dollar.
The U.S. Office of the Comptroller of the Currency (OCC) has noticed this gap. Its March 2026 proposal attempted to extend the yield ban to affiliates and third parties, but even then, it mainly targeted situations where issuers pay yield through side doors. It clearly cannot cover instruments where "the issuer pays no yield at all, and returns come entirely from the market."
To truly plug this gap, regulators would have to define synthetic dollars as a separate category and regulate them, but no one in Washington has written that rule yet.
Risks of the Basis Trade
The model has real failure modes, worth highlighting before USDe expands again: the strategy heavily depends on funding rates remaining positive over the long term.
Ethena's own data shows that over three years, Ethereum positions had cumulative negative funding rates 17.5% of the time, with the longest negative streak lasting 13 days, while the longest positive streak lasted 176 days. A reserve fund absorbs negative-yield periods, so stakers are not charged.
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 fell to $0.97, recovering within hours.
Reserve-backed stablecoins crash when custodian banks or custodians fail; synthetic dollars crash when a crowded trade unwinds—a different, more hidden risk that occurs even if no one makes 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 prohibited public sales of USDe, citing suspected sales of unregistered securities and inability to meet MiCA reserve requirements. Ethena became the third stablecoin issuer squeezed out of the EU.
Meanwhile, US institutional capital has gone in the opposite direction. In June 2026, Janus Henderson, with about $480 billion in assets under management, partnered with Ethena to use USDe for treasury cash management, include its tokenized AAA credit products in USDe reserves, and plan 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, another is plugging it into the infrastructure of a half-trillion-dollar asset manager. Both cannot be correct forever.
The Bull Case for Basis-Trade Dollars
The strongest bullish argument is this: USDe has earned its current size on merit. It has maintained its peg through multiple cycles, its collateral is over-collateralized and externally attested, and the yield it pays comes from real markets, not subsidies an issuer must eventually stop.
Demand for yield-bearing dollars will not disappear simply because Congress wishes it away, and pushing that demand offshore or off-label does not make it safer.
The problem is not that USDe is fraudulent, but that it is sold alongside instruments nothing like it, sharing the name "stablecoin," while the law has defined it as something else.
Treating USDe and USDC as interchangeable is, in effect, pricing a derivatives position as a checking account.
The GENIUS Act regulated one but left the other undefined, quietly fueling this confusion rather than clarifying it.
The GENIUS Act defined what a payment stablecoin is and cannot do, but it didn't touch instruments that reject that label. USDe is the largest of them. The open question for US regulators next is: will the next rule draw boundaries around synthetic dollars, or will yield simply migrate wherever they haven't drawn a line?
