The White House is turning up the pressure on the banking industry.
On Wednesday, the Council of Economic Advisers released a report arguing that banning yield on stablecoins would do little to support bank lending while imposing measurable costs on consumers. That same day, Treasury Secretary Scott Bessent used a Wall Street Journal op-ed to push Senate Republicans to get the CLARITY Act onto President Trump's desk.
Not a coincidence. The administration is trying to clear the last political hurdle standing in the way of comprehensive market structure legislation.
That hurdle is stablecoin yield. The GENIUS Act bans issuers from paying interest but leaves open a workaround via intermediaries. Banks have warned that if stablecoins offer competitive returns, deposits could shift out of the traditional system, reducing lending capacity, particularly at smaller community banks.
The new report challenges that view.
Banning yield would increase lending by about $2.1 billion, just 0.02% of total bank loans, while costing consumers an estimated $800 million. The report also argues that most stablecoin reserves are parked in Treasuries that cycle back into the banking system anyway.
So where does this leave us?
On Polymarket, the market gives the CLARITY Act a 59% chance of passing this year. The White House clearly wants that number at 100.
Combined with a classic Trump Truth Social post warning banks not to "hold the CLARITY Act hostage,” the administration has now made its case via research paper, op-ed, and all-caps social media.
In today’s Briefing:
Polymarket to roll out Polymarket USD
Ethena moves beyond crypto in search of higher yield
HIGH SIGNAL NEWS
Spiko's SAFO becomes fastest-growing tokenized fund in the world. Within three weeks after launch, the fund amassed nearly $400 million in AUM. To better understand who might be driving this growth, see our interview with Spiko CEO Paul-Adrien Hyppolite. 📈
Polymarket announces Polymarket USD. The new stablecoin will be backed 1:1 by USDC, is expected to go live in the coming weeks and should become the prediction market's main collateral token. 💵
Polygon Labs rumoured to raise $100 million in stablecoin payments push. Just in January, the blockchain developer acquired two payment-related firms for approximately $250 million. 💰
Another core contributor leaves Aave. After more than three years, risk firm Chaos Labs announced it will no longer provide risk management services to the leading lending protocol. This marks the third departure of a high-profile, long-standing contributor from the Aave DAO in the past two months. 👋
US Treasury unveils new stablecoin rules under GENIUS. In a joint statement, FinCEN and OFAC proposed a rule requiring permitted payment stablecoin issuers to implement AML and CFT programs, including transaction blocking and freezing capabilities, risk-based internal controls, and real-time cooperation with law enforcement targeting designated money laundering risks. 🇺🇸
TOP STORY
Ethena Moves Beyond Crypto in Search of Higher Yields
Beyond crypto yields: On Monday, leading DeFi protocol Ethena proposed a major overhaul of the reserve composition backing its yield-bearing stablecoin USDe. The plan is to expand USDe’s collateral mix beyond crypto-native yield sources such as DeFi lending into new asset classes like institutional lending and real-world credit, aiming to increase underlying yield and reignite supply growth.
Why it matters: The proposal comes at a critical time for Ethena. Last year, USDe was one of the fastest-growing stablecoins in crypto, reaching a supply of $14.8 billion and becoming the third-largest stablecoin less than two years after launch. But over the past six months, that trajectory has reversed sharply. Supply has fallen by 60% to $5.8 billion, while major competitors such as Tether, Circle, and Sky have continued to grow.
Top-4 stablecoins, their current market caps, and supply change since October 1, 2025
Double-edged sword: Notably, Ethena’s rapid rise and subsequent decline have both been driven by its core yield mechanism: the crypto basis trade.
How USDe works: Today, around 90% of USDe is backed by stablecoins such as USDC, some of which are deployed in DeFi lending markets to generate yield. Initially, however, its core backing relied on crypto collateral. Users can mint USDe by depositing BTC or ETH into Ethena, which then opens a corresponding short position in perpetual futures for each unit of crypto collateral. This structure captures funding rates — payments made by long traders to shorts when demand for leverage is high.
A strong tailwind: In bull markets, elevated long demand drives higher funding rates, translating into attractive, often double-digit yields for holders of staked USDe (sUSDe). Combined with strong distribution efforts by the Ethena team and USDe’s integration across major trading venues, it quickly became a widely used yield-bearing collateral.
Looping takes off: Integrations with DeFi lending markets such as Aave, along with the rise of sUSDe-based looping strategies, further accelerated growth. Users would post sUSDe as collateral, borrow stablecoins at low rates, convert back into sUSDe, and repeat the process, in some cases reaching 7-10x effective leverage on sUSDe yields of 30-50% during periods of elevated funding rates.
A cyclical engine: But such a growth model is inherently constrained, as it relies on elevated funding rates during bullish market phases. In weaker markets, as long demand fades, funding rates compress or turn negative, and the yield engine stalls.
Yield compression: That is exactly what happened late last year. After the October 10 market downturn, as leveraged traders were liquidated or turned more cautious, crypto funding rates compressed sharply. sUSDe’s average APY fell to roughly 3.5% from around 8% in the weeks prior, leaving it uncompetitive with risk-free T-bill yields of 3.5-3.75%.
Leverage unwind: As the value proposition weakened, some users who had been engaging in sUSDe looping began to unwind their positions, accelerating the contraction in supply.
Over the last twelve months, sUSDe APY has tended to precede changes in USDe’s supply
Diversification: These dynamics eventually led Ethena to rethink its collateral composition and reliance on crypto markets, prompting the team to explore alternative sources of collateral and yield for USDe.
"In the last few months we have been building out the infrastructure to securely access alternate sources of safe and scalable collateral to better position the business for these periods of downturn," said Guy Young, founder of Ethena Labs.
Concretely, these alternate sources are:
Prime lending: Overcollateralized loans to trading firms requiring margin.
Institutional lending: Direct stablecoin lending via providers such as Anchorage Digital, Maple Institutional, and Coinbase Asset Management, with loans overcollateralized by BTC or ETH.
Real-world assets: Expansion beyond T-bills into corporate loans, investment-grade corporate bonds, and short-duration credit funds. Initial allocations are expected to focus on AAA CLOs, offering a modest 120bps spread over T-bills with no historical defaults.
Equity and commodity basis trades: Ethena also plans to apply the basis trade to non-crypto perpetuals, where funding rates have been elevated in recent months. "For example, funding rates on Binance’s Gold perpetual future averaged 24.6% in March, which Ethena could capture," the team said.
What's next: Before being implemented at scale, all initiatives require independent assessment by Ethena's Risk Committee, which sets allocation caps, counterparty standards, and collateralization requirements. Testing is underway for some strategies, with the protocol expecting certain positions to go live shortly.
Tom Wan is Head of Data at Entropy Advisors, a consulting and protocol strategy agency working exclusively with the Arbitrum DAO. The firm also operates one of the most comprehensive data dashboards on Ethena and USDe.
How do you expect Ethena’s proposed changes to affect USDe yields and growth?
The most immediate effect would be a higher yield baseline for staked USDe (sUSDe). Reallocating part of the reserve to institutional lending would already lift yields above T-bills, with Maple Institutional and Anchorage paying ~5.4% and ~6.5% on loans, respectively. This alone could push sUSDe’s average APY back into the 4-5% range.
The equity and commodity basis trades could further enhance yields. On venues like Hyperliquid, where perpetual markets for these assets are gaining depth, funding rates are currently in the double digits on an annualized basis.
At the same time, these additional yield sources introduce greater operational complexity. Executing them would likely require new infrastructure, including access to traditional brokerages for spot exposure and relationships with centralized counterparties for institutional lending. This does not necessarily increase overall risk, but it changes its nature.
Still, given Ethena’s track record of operating USDe at scale, the team appears well positioned to manage this added complexity. If executed successfully, these new yield streams could also feed back into the broader onchain economy. Higher sUSDe yields would likely revive looping demand, lift stablecoin borrow rates across DeFi, and reaccelerate lending activity that has slowed as yields compressed in recent months.
Sébastien Dérivaux is co-founder of Steakhouse Financial, a leading DeFi vault curator with over $2 billion in assets under management, working with major crypto firms such as Coinbase and traditional institutions like SG-Forge.
How do Ethena’s proposed changes affect USDe’s risk profile and competitive positioning within the broader stablecoin landscape?
Without knowing the exact mix of assets that would back USDe, assessing the concrete impact on risk is difficult. The composition of collateral is also just one of many components of a stablecoin’s risk profile. Proper risk management, sound operational practices, and loss-absorbing mechanisms for periods of market stress (e.g. surplus buffers) are equally important.
From a competitive and growth perspective, however, diversification beyond T-bills and crypto-native yield sources is the right move. It also aligns with how other decentralized stablecoins have evolved over time. Sky’s USDS, now the third-largest stablecoin with around $11 billion in supply, has progressively diversified across crypto-native lending, T-bills, and tokenized real-world assets, adjusting allocations as market conditions shifted.
For players like Ethena and Sky, this evolution is also necessary. Their stablecoins are increasingly viewed as savings instruments, offering passive access to yield without requiring users to actively allocate capital. That is a fundamentally different use case from centralized stablecoins like USDT or USDC, which function primarily as a medium of exchange.
AllUnity: Risk Manager, Frankfurt am Main 🇩🇪
Ethereum Foundation: Senior Core Developer, Global 🌐
Fireblocks: Sales Engineer, EMEA, Berlin 🇩🇪
Grove Labs: Head of Trading & Market Structure, Global 🌐
Kraken: Sr. Group Product Manager - Earn, Europe 🇪🇺
Keyrock: Product Manager - Platform Products, Europe 🇪🇺
Ledger: Senior Software Architect, Blockchain & DeFi, Paris 🇫🇷
OpenFX: Product Manager Payments, London 🏴
Safe: Product Manager - Platform, Berlin 🇩🇪
Disclaimer: The information provided in the Crypto Briefing by Blockstories does not constitute investment advice. Accordingly, we assume no liability for any investment decisions made based on the content presented herein.
