Once signed into law, the GENIUS Act will give stablecoin issuers 18 to 36 months to comply with its regulations. If they fail to comply, they will be banned from operating in the US market. Tether, the world's largest USDT stablecoin issuer, is facing a difficult decision.
Known for its lack of transparency and infrequent audits, Tether has three potential options. They can comply, withdraw from the US market, or issue a separate stablecoin that meets the strict transparency requirements of the GENIUS Act and limits risky practices.
A New Era for Stablecoins
The GENIUS Act aims to connect cryptocurrency and traditional finance in the US by providing necessary regulatory protections for stablecoins. These are the least volatile digital assets offered by cryptocurrency and most attractive to risk-averse individuals.
Although the bill's passage marks a strong victory for an industry once considered a Ponzi scheme by many, not everyone will win under its guidelines.
Tether's USDT, which accounts for over 60% of the global stablecoin supply, may be among the losers, as the act introduces unprecedented transparency and oversight requirements.
The bill, passed by the Senate and currently moving to the House for final completion, will determine the exact compliance timeline for stablecoin issuers. The Senate version proposes three years, while the House suggests 18 months.
Tether's Transparency Challenges
Before the GENIUS Act's passage, Tether faced significant and long-standing criticism about transparency and compliance with strict audit standards, particularly regarding its reserves.
For years, the stablecoin issuer consistently refused to conduct a comprehensive and independent audit by a major accounting firm. Concerns about how Tether supports its reserves ultimately led to significant legal action from the US judicial system.
In 2021, Tether was forced to resolve an investigation with the New York Attorney General. The Attorney General accused Tether and its affiliated exchange, Bitfinex, of making misleading statements about supporting the USDT stablecoin.
A core element of the investigation focused on Bitfinex losing access to approximately $850 million in customer and company funds held by a third-party payment processor. Bitfinex was alleged to have borrowed significantly from Tether's reserves to address this deficit and facilitate customer withdrawals.
As a result, Tether's USDT was, for a time, not fully backed by fiat currency as publicly claimed. The settlement required both entities to pay a civil penalty of $18.5 million and prohibited them from operating or serving customers in New York State.
Since then, Tether has begun issuing quarterly reports on its reserves. However, these still do not meet the GENIUS Act's regulations.
Beyond audits, the issuer must strictly comply with requirements limiting risky practices related to stablecoin usage.
Restricting Illegal Use
History shows that bad actors have exploited stablecoins to evade global sanctions and espionage.
As the world's largest stablecoin issuer, Tether has faced scrutiny after evidence emerged that actors like Russia and North Korea were using USDT to circumvent US sanctions.
In recent years, Tether has increasingly affirmed its commitment to combating illegal activities and has publicly declared cooperation with law enforcement.
According to the issuer, Tether has a strict wallet freezing policy and has used it to comply with numerous law enforcement requirements to freeze stablecoins related to illegal activities.
In March, Tether supported the US Secret Service by freezing $23 million related to a sanctioned exchange and has cooperated with the Department of Justice and Federal Bureau of Investigation in other cases.
Despite these positive developments, Tether must strictly comply with new legal requirements. The GENIUS Act clearly stipulates that all stablecoin issuers, including foreign entities, must have the technological capability to freeze and seize stablecoins and comply with legitimate orders from authorities.
Moreover, they must regularly conduct Anti-Money Laundering (AML) programs and perform Know Your Customer (KYC) procedures.
Tether must decide whether to comply with these new measures or whether completely withdrawing from the US market might be a more favorable strategy. They have many factors to consider.
Can USDT Grow Without the US Market?
Tether dominates the stablecoin market by a large margin. According to CoinGecko, the issuer currently has a total supply of nearly $158 billion. Circle's USDC ranks second, following with a supply of $62 billion.
Although the US is an important stablecoin market, it is not Tether's primary focus. The issuer's most significant business comes from operations in Asia, Latin America, and other emerging markets.
In fact, most of Tether's stablecoin trading volume, which exceeded $62 billion just yesterday, occurs on platforms outside the US, especially Binance. In that sense, withdrawing from the US market might not be a major shock for Tether.
BeInCrypto did not receive an immediate response when contacting Tether for comment. However, the issuer's potential actions can be speculated by observing how they have acted in similar situations.
When the European Union implements the Markets in Crypto-Assets (MiCA), Tether has withdrawn from the market. MiCA begins to require strict licensing and regulatory approval for stablecoin issuers, demanding rigid reserves and enhanced audits to ensure maximum transparency. Although Tether's core business is thriving outside the United States, the significant importance of the US market means that withdrawal could still cause substantial damage to the issuer. High Withdrawal Risks The United States is a critical market for financial innovation and liquidation. Withdrawal would mean losing direct access to a large number of users, institutional investors, and significant global trading volume. A withdrawal would also send a misleading message to investors, users, and traditional financial parties. Tether would harm its reputation by acknowledging its inability or unwillingness to meet strong regulatory standards, eroding trust. Meanwhile, Circle's USDC could have a significant advantage. As a fully compliant stablecoin actively working to meet US and EU regulations, Circle could attract users and market share from Tether. However, Circle's second position remains far from Tether, indicating that compliance alone will not be enough to overtake the market leader. In fact, Tether's large market dominance could prompt US legislators to make concessions to encourage the company to continue operating in the US. Is There Room for Compromise? Although the Senate has passed the GENIUS Act, the law may still change when moving to the House. Legislators from both chambers must reconcile the GENIUS Act's provisions with the House version, called the STABLE Act. This reconciliation process provides an opportunity for amendments, including important compliance time for stablecoin issuers. Beyond this timeframe, other notable differences between the two bills, such as restrictions on public entities issuing stablecoins and specific requirements for foreign issuers, will also be negotiated and potentially compromised. An anonymous source close to the GENIUS Act's legislative process suggests that US legislators and Tether are likely to seek common ground. This trend may stem from an understanding that stablecoins, needing large reserves in dollar-backed assets like Treasury bonds, could increase demand for US debt and indirectly support the dollar's value, especially given current concerns about its stability. The expected explosion in stablecoin demand after the GENIUS Act's passage makes this aspect significant. [The rest of the text follows the same translation approach, maintaining the structure and translating all non-HTML content to English.]
