German financial regulators have rejected Ethena Labs’ MiCA application. The regulator has ordered Ethena to halt EU operations, freeze its asset reserves, and prohibit any new services. Regulators claim that Ethena’s USDe will not be considered as unregistered securities.

Although USDe didn’t receive a MiCA approval previously, its application was submitted before the July 2024 deadline. Therefore, Ethena was allowed to offer USDe services until a decision was made.

Will EU Exchanges Delist Ethena’s USDe?

Ethena Labs, the issuer of the USDe stablecoin, is different from traditional stablecoins in a few key ways. It dubs this asset a “synthetic dollar,” correlating it with USD by financial derivatives and algorithmic mechanisms instead of a peg.

However, German financial authorities have taken issue with it and made a statement shutting down Ethena GmbH, its EU branch.

“The German financial supervisory authority BaFin has identified serious deficiencies in Ethena GmbH’s USDe token authorization process and ordered immediate action. Among other things, BaFin has prohibited Ethena GmbH from further offering its USDe token to the public and instructed the company to have the corresponding asset reserve frozen by the custodians,” it claimed.

Specifically, the German regulators have a few different issues with Ethena’s business practices. Many of them deal with MiCA, the EU’s new stablecoin regulations.

Ethena Labs does not have MiCA approval, but its GmbH spinoff submitted an application early enough to be grandfathered in. Today, regulators found “serious deficiencies” in the approval process.

German financial authorities claimed that Ethena GmbH is not in compliance with MiCA’s rules concerning stablecoin reserves or capital requirements. They also suspect that the firm is offering securities without the necessary prospectus.

To address this, they instructed Ethena GmbH to close business with new EU customers and not touch its asset reserve.

Ethena Labs quickly responded with its own statement. It claimed that Ethena GmbH, its main German office, is one of several “options and jurisdictions” it has been exploring for a global strategy.

Although it was disappointed by this ruling, it will continue exploring other options, particularly through offices other than Ethena GmbH.

“To be clear, the decision will in no way disrupt any current listings of USDe, or minting and redemption via Ethena (BVI) Limited (which services the vast majority of our mint users). Contrary to reports, no assets have been ‘frozen’ and all remain available for redemption. We will be revising our terms accordingly,” Ethena Labs stated.

Despite its impressive successes, Ethena Labs’ USDe token has plenty of serious opponents. Since its stablecoin doesn’t have a traditional peg, critics are concerned that a few flaws in its reserve metrics could cause the whole thing to collapse.

With this decision, EU exchanges will likely be compelled to delist Ethena’s USDe, much like what happened to Tether USDT.

The US Treasury removed TORN, the native asset of Tornado Cash mixer, from the Office of Foreign Assets Control’s sanctions list. As a result, TRON has rallied 75% in the past hour.

The sanctions were previously caused by allegations of North Korean money laundering.

US Treasury Reverses Tornado Cash Sanctions

Tornado Cash, the decentralized privacy protocol, has been in many disputes over allegations that it enables North Korean money laundering.

In 2022, the US government sanctioned many of its wallets and brought charges against co-founder Roman Semenov the following year. Today, however, the US Treasury removed these sanctions on Tornado Cash:

“Based on the Administration’s review of the novel legal and policy issues raised by use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments, we have exercised our discretion to remove the economic sanctions against Tornado Cash,” the Treasury’s press release read.

The US Treasury’s sanctions against Tornado Cash are only one element of the continuing legal dispute. A Dutch court convicted another co-founder last year, although he was released on house arrest.

Last November, a US federal appeals court struck down the sanctions on Tornado Cash, prompting a 400% price spike. TORN jumped again when a Texas District Court concurred with this decision.

The Treasury officially removed the sanctions against Tornado Cash today, and TORN has already jumped over 75% and counting:

Despite the positive developments, there are still plenty of unaddressed concerns. As crypto sleuth ZachXBT recently noted, North Korean money laundering is an epidemic in the space right now.

The Treasury’s statement expressed its “deep concern” about continued laundering, even from Secretary Scott Bessent:

“Digital assets present enormous opportunities for innovation and value creation for the American people. Securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing US leadership and ensuring that the American people can benefit from financial innovation and inclusion,” claimed Bessent.

Ultimately, it’s up to Tornado Cash to address the Treasury’s concerns. Even though the Trump administration is significantly backtracking on crypto enforcement, Trump allies like Bessent are clearly uneasy.

If further North Korean money laundering continues on the platform, it may damage all this recent progress.

‬Trump‬‭’s economic policies‬‭ have‬‭ created‬‭ much‬‭ uncertainty in the past few months,‬‭ stunting stock markets and rocking investor confidence. However, as the United States faces a significant debt maturity of $7 trillion and high yields, theorists wonder whether Trump’s tariffs can get the Federal Reserve to bring interest rates down.

BeInCrypto spoke with Erwin Voloder, Head of Policy of the European Blockchain Association, and Vincent Liu, Chief Investment Officer at Kronos Research, to understand why Trump might be using tariff threats to boost American consumers’ purchasing power. They warn, however, that the risks far outweigh the benefits.

The US Debt Dilemma

The United States currently has a national debt of $36.2 trillion, the highest of any country in the world. This figure reflects the total sum of funds the federal government has acquired through borrowing to finance past expenditures.

In other words, the US owes foreign and domestic investors a lot of money. It will also have to repay certain loans in the next few months. 

When the government borrows money, it issues debt securities, like Treasury bills, notes, and bonds. These securities have a specific maturity date. Before this deadline, the government must pay back the original amount borrowed. In the next six months, the United States will have to pay back around $7 trillion in debt. 

The government has two options: It can either use available funds to repay the maturity debt or refinance it. If the federal government opts for the latter, it must take out further loans to repay the current debt, increasing the already ballooning national debt.

Since the US has a history of opting for the refinancing option, direct repayment seems unlikely. However, steep interest rates currently complicate refinancing.

High Interest Rates: An Obstacle to Debt Refinancing

Refinancing allows the government to roll over the debt, meaning it doesn’t need to find the money from available funds to pay off the old debt immediately. Instead, it can issue new debt to cover the old one. 

However, the Federal Reserve’s interest rate decisions significantly impact the federal government’s ability to refinance its debt. 

This week, the Federal Reserve announced that it will keep interest rates between 4.25% and 4.50%. The Reserve has steadily increased percentages past the 4% benchmark since 2022 to control inflation.

While this is good news for investors who expect higher yield returns on their bonds, it’s a bad outlook for the federal government. If it issues new debt to cover the old one, it would have to pay more in interest, which will strain the federal budget.

“In‬‭ practical‬‭ terms,‬‭ even‬‭ a‬‭ 1%‬‭ higher‬‭ interest‬‭ rate‬‭ on‬‭ $7‬‭ trillion equates to‬‭ $70 billion more in interest expense‬‭ per‬‭ year.‬‭ A‬‭ 2%‬‭ difference‬‭ would be $140‬‭ billion‬‭ extra‬‭ annually‬‭–‬‭ real‬‭ money that‬‭ could‬‭ otherwise‬‭ fund‬‭ programs‬‭ or‬‭ reduce‬‭ deficits,” Voloder told BeInCrypto, adding that “the‬‭ US‬‭ already‬‭ has‬‭ a‬‭ national‬‭ debt‬‭ exceeding‬‭ $36‬‭ trillion.‬‭ Higher‬‭ refinancing‬‭ rates‬‭ compound‬‭ the‬‭ debt‬‭ problem,‬‭ as‬‭ more‬‭ tax‬‭ revenue‬‭ must‬‭ go‬‭ just‬‭ to‬‭ pay‬‭ interest,‬‭ creating‬‭ a‬‭ vicious‬‭ cycle‬‭ of‬‭ larger‬‭ deficits‬‭ and‬‭ debt.”

This scenario indicates that the United States needs to proceed cautiously with its monetary policies. With looming debt repayment deadlines and concerns over inflation, the government should embrace stability over uncertainty. 

However, the Trump administration seems to be doing the opposite by threatening its neighbors with steep tariffs. The main question is: Why? 

Trump’s Tariff Policies: A Strategy or a Gamble?

During Trump’s first and second terms in office, he has continuously toyed with a tariff policy targeting his neighbors Canada and Mexico and his longtime rival China. 

In his most recent inaugural address, Trump reaffirmed his commitment to this trade policy, claiming it would bring money back into the United States.

“I will immediately begin the overhaul of our trade system to protect American workers and families. Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens. For this purpose, we are establishing the External Revenue Service to collect all tariffs, duties, and revenues. It will be massive amounts of money pouring into our Treasury, coming from foreign sources,” Trump said.

However, the ensuing uncertainty about trade relationships and consequent retaliatory actions from affected countries have inevitably created instability, causing investors to react sharply to the news.

Earlier this month, markets experienced a widespread selloff, driven by anxieties surrounding Trump’s tariff policies. These resulted in a sharp decline in US stocks, a drop in Bitcoin’s value, and a surge in Wall Street’s fear index to its highest point of the year.

A similar scenario also played out during Trump’s first presidency.

“Intentionally rising economic uncertainty via tariffs carries steep risks: markets could overreact, plunging and increasing percentages for a possible recession, as seen in 2018’s trade war drop,” Liu said. 

Whenever traditional financial markets are affected, crypto also suffers by association.

“In the immediate term, Trump’s production-first, America-First economics means digital asset markets‬‭ must‬‭ grapple‬‭ with‬‭ higher‬‭ volatility‬‭ and‬‭ less‬‭ predictable‬‭ policy‬‭ inputs.‬‭ Crypto‬‭ is‬‭ not‬‭ isolated‬‭ from‬‭ macro‬‭ trends‬‭ and‬‭ is‬‭ trading‬‭ increasingly‬‭ in‬‭ tandem‬‭ with‬‭ tech‬‭ stocks‬‭ and‬‭ risk‬‭ conditions,” Voloder said.

While some view Trump’s measures as careless and erratic, others see them as calculated. Some analysts have viewed these policies as a means to get the Federal Reserve to lower interest rates. 

Is Trump Using Tariffs to Influence the Federal Reserve?

In a recent video, Anthony‬ Pompliano, CEO of Professional‬ Capital‬ Management‬‭, argued that Trump was trying to lower Treasury yields by intentionally creating economic uncertainty.

Tariffs can disrupt trade relationships by acting as taxes on imported goods, consequently increasing the cost of goods for consumers and businesses. Given that these policies are often a great source of economic uncertainty, they can create a sense of instability in the economy. 

As evidenced by the market’s strong reaction to Trump’s tariff announcements, investors were spooked out of fear of an economic slowdown or looming recession. Consequently, businesses might reduce risky investments while consumers limit spending to prepare for price spikes. 

Investor habits may also change. With less confidence in a volatile stock market, investors may shift from stocks to bonds to seek safe-haven assets. US Treasury bonds are considered one of the safest investments in the world. In turn, this flight to safety increases their demand.

When demand for bonds increases, bond prices go up. This series of events indicates that investors are bracing themselves for prolonged economic uncertainty. In response, the Federal Reserve may be more inclined to lower interest rates. 

Trump achieved this during his first presidency.

“The theory that tariffs could lift bond demand hinges on fear sparking market shifts. Tariff‬ uncertainty might trigger equity sell-offs, boosting Treasuries and lowering yields to ease $7 trillion in US debt refinancing evidenced by 2018, when trade shocks cut yields from 3.2% to‬ 2.7%. Yet, with inflation at 3-4% and yields at 4.8%, success is not guaranteed. This will require tariffs to be credible enough to adjust markets without stoking inflation,” Liu told BeInCrypto.

If the Reserve lowers interest rates, Trump can acquire new debt at a lower price to pay off the impending debt maturity. 

The plan may also benefit the average American consumer– to an extent.

Potential Benefits

Treasury yields are a benchmark for many other interest rates in the economy. Therefore, if Trump’s trade policies get Treasury yields to fall, this could have a trickle effect. The Federal Reserve could lower interest rates on other loans, such as mortgages, car loans, and student loans. 

In turn, borrowing rates would drop, and disposable income would increase. Thus, the average American citizen can contribute to overall economic growth with greater purchasing power. 

“For‬‭ an‬‭ American‬‭ family,‬‭ a‬‭ drop‬‭ in‬‭ mortgage‬‭ rates‬‭ can‬‭ mean‬‭ substantial‬‭ savings‬‭ on‬‭ monthly‬‭ payments‬‭ for‬‭ a‬‭ new‬‭ home‬‭ or‬‭ refinance.‬‭ Businesses‬‭ might‬‭ find‬‭ it‬‭ easier‬‭ to‬‭ finance‬‭ expansions‬‭ or‬‭ hire‬‭ new‬‭ workers‬‭ if‬‭ they‬‭ can‬‭ borrow‬‭ at‬‭ 3%‬‭ instead‬‭ of‬‭ 6%.‬‭ In‬‭ theory,‬‭ greater‬‭ access‬‭ to‬‭ low-interest‬‭ loans‬‭ could‬‭ stimulate‬‭ economic‬‭ activity‬‭ on‬‭ Main‬‭ Street,‬‭ aligning‬‭ with‬‭ Trump’s‬‭ goal‬‭ of‬‭ revving‬‭ growth,” Voloder explained. 

However, the theory relies on investors reacting very specifically, which is not guaranteed. 

“It’s a high-stakes bet with a narrow margin for error for success depending on many different economic‬ factors,” Liu said. 

In the end, the risks heavily outweigh the potential benefits. In fact, consequences can be grave. 

Inflation and Market Instability

The theory of deliberately causing market uncertainty hinges on the fact that the Federal Reserve would bring down interest rates. However, the Reserve is intentionally keeping interest rates high to contain inflation. A tariff war threatens to spur inflation.

“Yields‬‭ could‬‭ hit‬‭ 5%‬‭ if‬‭ inflation spikes, not drop, and [Jerome] Powell’s‬‭ high‬‭ odds‬‭ of‬‭ holding‬‭ rates‬‭ steadily‬‭ undermine‬‭ the‬‭ plan,” Liu said. 

To that point, Voloder added:

“If‬‭ the‬‭ plan‬‭ backfires‬‭ and‬‭ yields‬‭ don’t‬‭ fall‬‭ enough,‬‭ the‬‭ US might‬‭ end‬‭ up‬ ‭refinancing‬‭ at‬‭ high‬‭ rates‬‭ anyway‬‭ and‬‭ with‬‭ a‬‭ weaker‬‭ economy,‬‭ which‬‭ would‬‭ be‬‭ the‬‭ worst‬‭ outcome.”

Meanwhile, since tariffs directly increase the cost of imported goods, this cost is often passed on to consumers. This scenario creates higher prices for a wide range of products and causes inflationary pressures, eroding purchasing power and destabilizing the economy. 

“Inflation‬‭ stemming‬‭ from‬‭ tariffs‬‭ means‬‭ each‬‭ dollar‬‭ earned‬‭ buys‬‭ less.‬‭ This‬‭ stealth‬‭ tax‬‭ hurts‬‭ lower-income‬‭ families‬‭ the‬‭ most,‬‭ as‬‭ they‬‭ spend‬‭ a‬‭ higher‬‭ fraction‬‭ of‬‭ their‬‭ income‬‭ on‬‭ affected essentials,” Voloder said. 

In this context, the Reserve would likely hike Treasury yields. The scenario could also gravely affect the health of the United States’ job market economy.

Impact on Jobs and Consumer Confidence

The economic uncertainty of tariffs can deter businesses from continuing to invest in the United States. In this context, companies may delay or cancel expansion plans, reduce hiring, and cut back on research and development projects. 

“‬‭The‬‭ impact‬‭ on‬‭ jobs‬‭ is‬‭ a‬‭ major‬‭ concern.‬‭ Intentionally‬‭ cooling‬‭ the‬‭ economy‬‭ to‬‭ force‬‭ rate‬‭ cuts‬‭ is‬ ‭ essentially‬‭ flirting‬‭ with‬‭ higher‬‭ unemployment.‬‭ If‬‭ markets‬‭ drop‬‭ and‬‭ business‬‭ confidence‬‭ wanes,‬ ‭ companies‬‭ often‬‭ respond‬‭ by‬‭ cutting‬‭ back‬‭ on‬‭ hiring‬‭ or‬‭ even‬‭ laying‬‭ off‬‭ workers,” Voloder said.‭

Rising prices and market volatility could also damage consumer confidence. This dynamic would reduce consumer spending, which is a major driver of overall economic growth.

“Americans‬‭ face‬‭ higher‬‭ prices‬‭ and‬‭ eroded‬‭ purchasing‬‭ power‬‭ as‬‭ a‬‭ direct‬‭ result‬‭ of‬‭ tariffs‬‭ and‬‭ uncertainty.‬‭ Tariffs‬‭ on‬‭ everyday‬‭ goods‬‭ –‬‭from‬‭ groceries‬‭ to‬‭ electronics‬‭–‬‭ act‬‭ like‬‭ a‬‭ sales‬‭ tax‬‭ that‬‭ consumers‬‭ ultimately‬‭ pay.‬‭ These‬‭ costs‬‭ hit‬‭ consumers‬‭ at‬‭ a‬ ‭ time‬‭ when‬‭ wage‬‭ growth‬‭ may‬‭ stall‬‭ if‬‭ the‬‭ economy‬‭ slows.‬‭ So,‬‭ any‬‭ extra‬‭ cash‬‭ saved‬‭ from‬‭ lower‬ ‭interest‬‭ payments‬‭ could‬‭ be‬‭ offset‬‭ by‬‭ rising‬‭ prices‬‭ for‬‭ consumer‬‭ goods‬‭ and‬ ‭ possibly‬‭ higher‬‭ taxes‬‭ down‬‭ the‬‭ road‬‭,” Voloder told BeInCrypto.

The consequences are not just limited to the United States, however. As with any trade dispute, countries will feel inclined to respond– and recent weeks have proven that they already have.

Trade Wars and Diplomatic Tensions

Both countries responded sharply when Trump imposed 25% tariffs on products entering the US from Canada and Mexico.

Canadian Prime Minister Justin Trudeau called the trade policy a “very dumb thing to do.” He then announced retaliatory tariffs on American exports and gave notice that a trade war would have consequences for both countries. Mexico’s President Claudia Sheinbaum did the same.

In response to Trump’s 20% tariff on Chinese imports, Beijing imposed retaliatory tariffs of up to 15% on various significant US agricultural products, including beef, chicken, pork, and soybeans.

Additionally, ten American companies now face restrictions in China after being placed on the country’s ‘reliable entity list.’ This list prevents them from engaging in import/export trade with China and limits their ability to make new investments there.

The Chinese Embassy in the United States also said that it wasn’t scared by intimidation. 

Tariffs will also have consequences beyond harming international relations.

Global Supply Chain Disruptions

International trade wars could disrupt global supply chains and harm export-oriented businesses. 

“From‬‭ a‬‭ macro‬‭ perspective‬‭ there‬‭ is‬‭ also‬‭ the‬‭ fear‬‭ of‬‭ trade‬‭ war‬‭ escalation‬‭ globally‬‭ which‬‭ could‬‭ have‬‭ the‬‭ boomerang‬‭ effect‬‭ of‬‭ denting‬‭ US‬‭ exports‬‭ and‬‭ manufacturing,‬‭ meaning‬‭ US‬‭ farmers‬‭ losing‬‭ export‬‭ markets‬‭ or‬‭ factories‬‭ facing‬‭ costlier‬‭ inputs.‬‭ This‬‭ global‬‭ tit-for-tat‬‭ could‬‭ amplify‬‭ the‬‭ downturn‬‭ and‬‭ also‬‭ strain‬‭ diplomatic‬‭ relations.‬‭ Additionally,‬‭ if‬‭ international‬‭ investors‬‭ see‬‭ US‬‭ policy‬‭ as‬‭ chaotic,‬‭ they‬‭ might‬‭ reduce‬‭ investment‬‭ in‬‭ the‬‭ US over‬‭ the‬‭ longer‬‭ term,” Voloder told BeinCrypto. 

Inflationary pressures and economic downturns could also push individuals to embrace digital assets.

“Additionally,‬‭ if‬‭ the‬‭ US pursues‬‭ mercantilist‬‭ policies‬‭ that‬‭ alienate‬‭ foreign‬‭ creditors‬‭ or‬‭ weaken‬‭ confidence‬‭ in‬‭ the‬‭ dollar’s‬‭ stability,‬‭ some‬‭ investors‬‭ might‬‭ increase‬‭ allocations‬‭ to‬‭ alternative‬‭ stores‬‭ of‬‭ value‬‭ like‬‭ gold‬‭ or‬‭ Bitcoin‬‭ as‬‭ a‬‭ hedge‬‭ against‬‭ currency‬‭ or‬‭ debt‬‭ crises,” Voloder explained.

Consumers might experience shortages of essential goods, while businesses would see increased production costs. Those that rely on imported materials and components would be particularly affected. 

A High-Risk Strategy: Is it Worth it?

The theory that tariffs could lower yields by creating uncertainty is a highly risky and potentially damaging strategy. The negative effects of tariffs, such as inflation, trade wars, and economic uncertainty, far outweigh potential short-term benefits.

As products become more expensive and businesses reduce their workforce to equilibrate their balance sheets, the average American consumer will experience the brunt of the consequences.