USDe Bypasses the GENIUS Act’s Earnings Ban: How Synthetic Dollars Have Become Crypto’s Most Successful Gray Area?
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USDe Bypasses the GENIUS Act’s Earnings Ban: How Synthetic Dollars Have Become Crypto’s Most Successful Gray Area?
The Regulatory Paradox of USDe: Banned in Europe, Yet Heavily Adopted by U.S. Institutions
Navigating Web3 tides with focused insightsBy Zennon Kapron, Contributing Writer, Forbes
Translated by AididiaoJP, Foresight News
When Congress drafted the GENIUS Act, it drew a clear red line for stablecoins: licensed payment stablecoin issuers may not pay interest or yield of any kind to holders. This provision—Section 4(a)(11)—forced Circle and Coinbase to completely overhaul how USDC holders earn yield.
Meanwhile, Ethena’s USDe—the fastest-growing yield-bearing dollar in crypto—has entirely sidestepped this restriction.
USDe’s Core Mechanism and Regulatory Gap
USDe does not hold cash or Treasury securities. It is a delta-neutral synthetic dollar: the protocol accepts crypto collateral and simultaneously opens hedged perpetual futures short positions, stabilizing the dollar value while generating yield from those positions. By staking USDe as sUSDe, users capture that yield.
Because its underlying mechanism involves hedged derivatives trading—not fiat reserves—USDe does not meet the statutory definition of a payment stablecoin. As a result, the GENIUS Act’s prohibition—which reshaped USDC—is wholly inapplicable to USDe.
The result? A regulatory gap housing billions of dollars—and growing—while policy discussions remain fixated on stablecoins complying with the new rules.
From Niche Product to Top Three
This is no fringe product. In 2025, USDe’s supply peaked above $14 billion—roughly 5% of the entire stablecoin market—and CoinDesk had already dubbed it the third-largest dollar-denominated crypto asset. After deleveraging in October 2025, supply contracted to approximately $5.9 billion and remains at that level today.
Even at reduced scale, it remains the only non-fiat-reserve stablecoin ranked among the top tier. All other dollar stablecoins of comparable size are fully backed by cash and government bonds. USDe, by contrast, is fundamentally a trading strategy—one that happens to mint a token.
In January 2026, it partnered with Kraken to introduce custodial services and provide weekly reserve attestations, further solidifying credibility beyond what basis trading alone could deliver.
Where the Yield Actually Comes From
This yield originates from one of the oldest derivatives structures: cash-and-carry basis trading. When perpetual funding rates are positive, longs pay shorts—and USDe’s hedged short positions profit accordingly, augmented by staking yields on the collateral.
Ethena describes this as the combination of funding rates and basis spreads generated by delta-hedged derivatives; CoinDesk puts it more plainly: USDe generates yield by harvesting funding rates. At the start of 2026, the annualized yield on staked sUSDe stood around 4%.
This is the legal crux of the entire design: the issuer pays no interest on reserves—a practice prohibited under the GENIUS Act. Instead, a strategy generates returns, and the token merely passes them through—a scenario never addressed by the GENIUS Act.
This technical distinction—seemingly subtle—constitutes the entire boundary between regulated and unregulated products.
Definitions Not Covered by the GENIUS Act
The GENIUS Act regulates only payment stablecoins—requiring 1:1 backing by fiat or Treasuries and mandating monthly disclosures. USDe meets none of these criteria and has never attempted to.
Ethena’s response to the U.S. market was to launch a second, standalone product: USDtb—a fiat-backed stablecoin issued in partnership with Anchorage Digital, fully compliant with the GENIUS Act and primarily supported by BlackRock’s tokenized money market fund.
Thus, Ethena operates two distinct dollars: one compliant, non-yielding, and designed for payments; the other, a yield-bearing synthetic dollar.
The Office of the Comptroller of the Currency (OCC) has taken note of this gap. Its March 2026 proposal seeks to extend the yield ban to affiliates and third parties—but even then, it targets mainly cases where issuers pay yield indirectly via “backdoor” arrangements. It clearly cannot cover instruments where “the issuer pays no yield whatsoever, and returns arise entirely from the market.”
To truly close this gap, regulators must define synthetic dollars as a distinct category and subject them to regulation—but no one in Washington has yet drafted that rule.
Risks of Basis Trading
This model has real failure modes—ones worth clarifying before USDe expands again: its strategy relies heavily on sustained positive funding rates over time.
Ethena’s own data shows that, over three years, Ethereum positions accumulated negative funding rates on 17.5% of days, with the longest stretch of negative rates lasting 13 days—and the longest stretch of positive rates lasting 176 days. The reserve fund absorbs losses during negative-yield periods, so stakers are not charged fees.
The true danger lies in prolonged windows of negative funding rates coinciding with system-wide DeFi leveraged liquidations. The market flash crash on October 10, 2025 served as a test: USDe briefly dipped to $0.97 before recovering within hours.
Reserve-backed stablecoins collapse when custodian banks or custodians fail; synthetic dollars collapse when crowded trades unwind—a different and more opaque risk that can occur without anyone making a mistake.
Europe Says No, U.S. Institutions Say Yes
Regulators have not reached consensus. Germany’s BaFin forced Ethena to shut down its local entity and banned public sales of USDe, citing unregistered securities offerings and failure to meet MiCA reserve requirements. Ethena became the third stablecoin issuer excluded from the EU.
U.S. institutional capital, meanwhile, moved in the opposite direction. In June 2026, Janus Henderson—managing approximately $480 billion—partnered with Ethena to deploy USDe for treasury cash management and to incorporate tokenized AAA-rated credit products into USDe’s reserves, with 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; another integrates it into the infrastructure of a half-trillion-dollar asset manager. Both cannot be right indefinitely.
The Bull Case for Basis-Trade Dollars
The strongest bull argument is that USDe earned its current scale on merit. It has maintained its peg across multiple cycles, maintains overcollateralization with external attestations, and pays yield derived from genuine market activity—not subsidies that issuers must eventually cease.
Demand for yield-bearing dollars will not vanish because Congress wishes it would—and pushing that demand offshore or into unregulated channels won’t make it safer.
The issue isn’t that USDe is fraudulent—it’s that it’s marketed alongside tools utterly unlike itself, all sharing the label “stablecoin,” a term the law has already defined differently.
Treating USDe and USDC as interchangeable—holding them as if they were the same—amounts to pricing a derivatives position as if it were a checking account.
The GENIUS Act regulates only one of these—and leaves the other undefined—quietly enabling, rather than clarifying, this confusion.
The GENIUS Act clearly defines what a payment stablecoin is and what it cannot do—but says nothing about instruments that reject that label outright. USDe is the largest such instrument. The open question facing U.S. regulators next is: Will the next rule establish boundaries for synthetic dollars—or will yield continue migrating anywhere beyond the lines they’ve already drawn?
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