The GENIUS Act has been approved by the Senate and is about to be implemented. What impact will it have on Tether?

Source: Can Tether's Dominance Survive the US Stablecoin Bill?

Compiled and edited by Lenaxin and ChainCatcher

Background

• Stablecoin issuer Tether may soon face significant difficulties in the U.S. market, with its USDT likely to fail to meet the standards outlined in the Senate’s GENIUS Act.
• Legal experts have suggested Tether may need to wait and see, but critics of the bill argue that Tether will still find major loopholes to lure U.S. investors.

USDT issued by Tether is the world's largest stablecoin. The latest data shows that its issuance volume pegged to the US dollar has reached 155 billion US dollars. However, analysts pointed out that Tether's current model may be difficult to meet the upcoming regulatory requirements of the United States. The U.S. Senate will conduct a final review of the "2025 United States Stablecoin National Innovation Guidance and Establishment Act" (GENIUS Act) on Tuesday. This will be the first federal bill in the cryptocurrency field to enter the legislative process. The bill will then be submitted to the House of Representatives for deliberation and will be signed by the President after the Senate and the House of Representatives reach an agreement.

Industry experts believe that Tether may face two choices: adjust its business model to meet the new US regulations, or withdraw from the US market to focus on overseas business. The clarification of the US regulatory framework may drive the expansion of the industry scale and affect the regulatory orientation of other jurisdictions.

The current draft legislation provides a path for foreign stablecoin issuers to enter the U.S. market, but the compliance procedures are relatively complicated. According to the draft, if companies such as Tether intend to issue tokens to U.S. users, they must meet the following conditions: first, they must be supervised by a foreign regulatory agency recognized by the United States, and their regulatory standards must be comparable to those of the United States; second, they may need to register with the U.S. Office of the Comptroller of the Currency (OCC) and accept supervision; finally, they must hold sufficient reserves in financial institutions within the United States to ensure that they can repay the redemption needs of U.S. customers in the event of the issuer's bankruptcy.

The bill imposes strict reserve management requirements on all regulated issuers: they must hold highly liquid assets such as cash and U.S. Treasury bonds equivalent to the value of circulating tokens. In terms of compliance mechanisms, issuers must be audited by registered accounting firms every month, and the audit reports must be signed and certified by the company's CEO and CFO, which means that executives will bear personal legal responsibility for the authenticity of information disclosure. It is worth noting that the regulatory framework imposes more frequent information disclosure obligations on stablecoin issuers than traditional financial institutions.

In addition, according to the requirements of the bill, relevant companies must fully comply with anti-money laundering regulations applicable to U.S. financial institutions.

Does Tether need to change in a hurry?

“If I were Tether, I wouldn’t just go into the U.S. and say, ‘I definitely want to be involved in this, I want to be involved in this,’ unless I understood the regulations,” Steve Gannon, an attorney for digital asset clients at Davis Wright Tremaine LLP, told CoinDesk in an interview. “The downstream impact for Tether in terms of having to comply with those regulations could be a huge investment of time, energy, manpower, money, and technology.”

As one of the most profitable companies in the world, Tether is likely to continue to focus its strategy on emerging markets, which are relatively less affected by the GENIUS Act. It is worth noting that Tether has recently moved its headquarters to El Salvador, which has a loose cryptocurrency policy, while the country has not yet reached the international leading level in terms of the perfection of its financial regulatory system.

However, it should be noted that the US bill gives the Treasury Secretary broad discretion, including the authority to assess the completeness of each country's regulatory system and decide whether to grant regulatory exemptions to specific companies.

“For example, the Trump Administration could reach a reciprocal agreement with the Bukele regime in El Salvador, where Tether is based, to allow Tether full access to U.S. markets while sidestepping the bill’s requirements,” according to talking points released by the camp of one of the bill’s leading opponents, Sen. Elizabeth Warren, the ranking Democrat on the Senate Banking Committee.

Corey Freire, director of investor protection at the Consumer Federation of America and former cryptocurrency policy advisor to the U.S. Securities and Exchange Commission, noted: "Even though El Salvador's current regulatory system is imperfect, it is hard to imagine that it will reach the same level of robustness and security as the United States. However, under the current regulatory framework, the country may still receive reciprocal treatment and enjoy standards comparable to those of the United States."

Despite strong opposition from Senator Warren and her allies, many of her Democratic colleagues have supported the bill, which supporters believe will at least establish a preliminary regulatory framework for the key field of stablecoins.

Critics point out that the bill still has obvious loopholes that could allow unregulated foreign stablecoins to circulate through U.S. decentralized crypto platforms.

“Unfortunately, the GENIUS Act dramatically expands the market for stablecoins while failing to address the fundamental national security risks they pose,” Warren said in a speech on the Senate floor last week. “The bill also contains glaring loopholes that allow Tether, a notorious foreign stablecoin issuer now based in El Salvador, to enter U.S. markets.”

Tether’s U.S. Plans

However, Tether CEO Paolo Ardoino recently said that the company may not introduce its mainstream tokens into the U.S. market as a direct issuer, but instead consider issuing new stablecoins through a local branch that is fully regulated by the United States.

For Tether, the current regulatory requirements in the United States are a double whammy, as its current business model is far from meeting compliance standards. Although the company has not commented on the GENIUS Act, it has warned users in its updated terms of service this year: "If Tether fails to adapt to the changing regulatory environment, it may face regulatory sanctions, which may have an adverse impact on the company's operations."

Although the Senate legislative process marks a major policy breakthrough for the digital asset industry, uncertainty remains: the House of Representatives will propose its own version, and the more critical supporting legislation - a regulatory framework for other cryptocurrency sectors - is still being developed. Before Trump signs the bill and federal agencies issue implementation details, stablecoin issuers will have difficulty obtaining clear compliance guidance.

“Foreign issuers face two undefined hurdles: the conditions under which they will ultimately be allowed to serve U.S. customers and how regulators will exercise discretion to govern market access,” Richard Rosenthal, head of Deloitte’s digital asset regulation practice, said in an email to CoinDesk. “It remains to be seen how this politically sensitive area will ultimately pan out.”

Furrer told CoinDesk, however, that House lawmakers are unlikely to lower compliance standards for Tether — especially in the face of the company’s ally in the Trump administration, Commerce Secretary Howard Lutnick, a former Cantor Fitzgerald executive who managed Tether’s U.S. Treasury reserves.

“I don’t think the House will force anything further against Tether,” Freire said. But he added that if large non-bank competitors like Google and Amazon began launching stablecoins, “the House might be motivated to do more on this issue.”

Competitive cycle?

American company Circle and its USDC have been looking to seize market share from its main competitor Tether, and Circle is also looking to participate in what some expect to be a post-regulatory wave of cryptocurrency in the U.S. If institutional investors and traditional financial companies embrace digital assets as the industry hopes, and Tether continues to stay outside the U.S. financial system, it may miss out.

Earlier this year, the U.S. Securities and Exchange Commission (SEC) added a number of stablecoins to its growing list of cryptocurrency projects that the agency deemed to be outside its scope. However, the agency’s statement came with some warnings about Tether.

While the regulator — which has been run by crypto-friendly leaders since Trump’s election — also excluded stablecoins from its securities jurisdiction, it noted in a footnote that appropriate stablecoin reserves “do not include precious metals or other crypto assets,” both of which are part of Tether’s reserves. The GENIUS Act explicitly states that “payment stablecoins are not securities or commodities and that permitted payment stablecoin issuers are not investment companies, but this is not yet a statutory requirement.”

Technically, these considerations are not part of Tether’s current business model, as Tether deliberately avoids direct contact with U.S. customers. At least for now.