Under the impact of the GENIUS Act, can Tether maintain its leading position?

Source: Can Tether's Dominance Survive the U.S. Stablecoin Bill?

Compiled by: Lenaxin, ChainCatcher

Background

• The stablecoin issuer Tether may soon face significant challenges in the U.S. market, as its USDT may not meet the standards outlined in the Senate's GENIUS Act.
• Legal experts suggest that Tether may need to wait and see, but critics of the bill argue that Tether will still find significant loopholes to attract U.S. investors.

The USDT issued by Tether is the largest stablecoin by market share globally. Recent data shows that its issuance, pegged to the U.S. dollar, has reached $155 billion. However, analysts point out that Tether's current model may struggle to meet the upcoming regulatory requirements in the U.S. The U.S. Senate is set to conduct a final review of the 2025 U.S. Stablecoin National Innovation and Establishment Act (GENIUS Act) on Tuesday, which will be the first federal bill in the cryptocurrency space to enter the legislative process. The bill will then be submitted to the House of Representatives for review and must be agreed upon by both chambers before being signed into law by the President.

Industry experts believe that Tether may face two options: adjust its business model to comply with the new U.S. regulations or exit the U.S. market to focus on overseas operations. The clarity of the U.S. regulatory framework may drive industry expansion while influencing regulatory approaches in other jurisdictions.

The current legislative draft provides a pathway for foreign stablecoin issuers to enter the U.S. market, but the compliance process is complex. According to the draft, if companies like 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 U.S., with regulatory standards comparable to those in the U.S.; second, they may need to register with and be regulated by the Office of the Comptroller of the Currency (OCC); finally, they must hold sufficient reserves in U.S. financial institutions to ensure that they can meet redemption demands from 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 cash and other highly liquid assets equivalent to the value of circulating tokens. In terms of compliance mechanisms, issuers must undergo monthly audits by registered accounting firms, and the audit reports must be certified by the company's CEO and CFO, meaning executives will bear personal legal responsibility for the accuracy of disclosures. Notably, this regulatory framework imposes more frequent disclosure obligations on stablecoin issuers than on traditional financial institutions.

Additionally, according to the bill's requirements, relevant companies must fully comply with anti-money laundering regulations applicable to U.S. financial institutions.

Is Tether in No Rush to Change?

"If I were Tether, I wouldn't rush into the U.S. saying, 'I definitely want to be involved, I want to be involved,' unless I understand the relevant regulations," said Steve Gannon, a digital asset client attorney at Davis Wright Tremaine, in an interview with CoinDesk. "In terms of compliance with these regulations, the downstream impact on Tether could be a massive investment of time, energy, manpower, funds, and technology."

As one of the most profitable companies globally, Tether is likely to continue focusing its strategic efforts on emerging markets, which are relatively less affected by the GENIUS Act. Notably, Tether has recently relocated its headquarters to El Salvador, a country with a more lenient cryptocurrency policy, although its financial regulatory system has not yet reached international leading standards.

However, it should be noted that the U.S. bill grants the Treasury Secretary broad discretion, including the authority to assess the completeness of various countries' regulatory systems and to 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, allowing Tether to fully enter the U.S. market while circumventing the requirements of the bill," according to talking points released by one of the bill's main opponents, senior Democratic Senator Elizabeth Warren.

Corey Frayer, director of investor protection at the Consumer Federation of America and former cryptocurrency policy advisor at the SEC, pointed out, "Even if El Salvador's current regulatory system is not perfect, it is hard to imagine it achieving the same level of soundness and security as the U.S. However, under the current regulatory framework, the country could still receive reciprocal treatment, enjoying standards comparable to those in the U.S."

Despite Senator Warren and her allies' strong opposition, they have failed to prevent numerous Democratic colleagues from supporting the bill. Supporters argue that it at least establishes a preliminary regulatory framework for the critical area of stablecoins.

Critics, however, point out that the bill still has significant loopholes that could allow unregulated foreign stablecoins to circulate through decentralized cryptocurrency platforms in the U.S.

Warren stated during a Senate speech last week, "Unfortunately, the GENIUS Act significantly expands the market for stablecoins without addressing the fundamental national security risks it poses. The bill also has clear loopholes that allow Tether—a notoriously foreign stablecoin issuer now headquartered in El Salvador—to enter the U.S. market."

Tether's Plans for the U.S.

However, Tether CEO Paolo Ardoino recently stated that the company may not introduce its mainstream token to the U.S. market as a direct issuer but is considering issuing a new type of stablecoin through a fully U.S.-regulated local branch.

For Tether, the current regulatory requirements in the U.S. could be a double whammy, as its existing business model falls far short of compliance standards. While 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 continuously changing regulatory environment, it may face regulatory sanctions that could adversely affect the company's operations."

Although the Senate's legislative process marks a significant policy breakthrough for the digital asset industry, uncertainty remains: the House will propose its version, while more critical accompanying legislation—regulatory frameworks for other areas of cryptocurrency—is still being developed. Before Trump signs the bill and federal agencies issue implementation guidelines, stablecoin issuers are unlikely to receive clear compliance guidance.

Richard Rosenthal, head of Deloitte's digital asset regulatory practice, noted in an email to CoinDesk: "Foreign issuers face two major unclear obstacles: one is what conditions the law will ultimately allow them to serve U.S. customers; the other is how regulators will exercise discretion to control market access. The final direction of this politically sensitive area remains to be seen."

However, Furrer told CoinDesk that House members are unlikely to lower compliance thresholds for Tether—especially in the face of the company's allies in the Trump administration, such as former Cantor Fitzgerald executive and Commerce Secretary Howard Lutnick, who managed Tether's U.S. Treasury reserves.

Frayer stated, "I don't think the House will force any further actions against Tether." But he added that if large non-bank competitors like Google and Amazon start launching stablecoins, "the House may be motivated to take more action on this issue."

Competitive Cycle?

U.S. company Circle and its USDC have been eyeing opportunities to capture market share from major competitor Tether, and Circle also plans to participate in what some expect to be a wave of U.S. cryptocurrency regulation. If institutional investors and traditional financial companies embrace digital assets as the industry hopes, while Tether remains outside the U.S. financial system, it may miss out on significant opportunities.

Earlier this year, the U.S. Securities and Exchange Commission (SEC) added some stablecoins to its growing list of cryptocurrency projects, which the agency deemed outside its purview. However, the agency's statement issued some warnings regarding Tether.

Although the regulatory agency—led by cryptocurrency-friendly leaders since Trump's election—has 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 authorized payment stablecoin issuers are not investment companies, but this is not yet legally established."

From a technical standpoint, these considerations are not currently part of Tether's business model, as Tether deliberately avoids direct contact with U.S. customers. At least for now.

Disclaimer

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