The U.S. Congress is already pushing forward with the “GENIUS ACT” bill, which is designed to regulate stablecoins, a digital asset that is linked to the value of the U.S. dollar. The bill passed the Senate last week and is now awaiting action in the House of Representatives. If it becomes law, it will be a win for the digital assets space; however, it would require stablecoin companies to follow strict rules to continue operating in the U.S.
The GENIUS ACT says stablecoins must be backed by safe assets like cash or short-term government bonds. Large stablecoin companies would also need to publish yearly audited financial statements.
That might be a problem for Tether, the largest stablecoin issuer in the world, with $156 billion worth of coins in circulation. The thing is, Tether uses bitcoin and gold to back its coins, and it doesn’t provide full public audits.
According to Scott Armstrong, a former federal prosecutor who now works at law firm McGovern Weems. “There’s no ambiguity about those requirements. For anyone to participate now in the U.S. market and the stablecoin regime, they have to take those steps.” In short, this puts Tether in a tough position. If it doesn’t follow the new rules, it could be forced to leave the U.S. market.
Tether has not responded to requests for comment, but CEO Paolo Ardoino has said the company might launch a separate, U.S.-specific stablecoin to stay active in the market. Tether also moved its headquarters to El Salvador and got a license there to offer crypto services.
The Senate version of the bill gives stablecoin companies three years to comply, while the House version offers just 18 months. Both versions must be aligned before President Trump, who has shown support for the bill, can sign it into law. The bill would also require firms to work with law enforcement, freeze assets tied to crime, and report suspicious activity, just like regular banks do.
Meanwhile, Tether has faced scrutiny before. In 2021, the company settled a case with the New York Attorney General after allegedly covering up an $850 million shortfall. Since then, Tether has released quarterly updates about its reserves, but they aren’t full independent audits. Critics say that’s not enough under the new rules being proposed.
Tether could decide to leave the U.S. entirely, as it did earlier this year in the European Union after similar regulations were introduced. Most of the trading involving Tether stablecoins already happens outside the U.S., especially in Asia and Latin America. The majority of that activity takes place on foreign crypto exchanges like Binance.
Still, Tether has some powerful friends in the U.S. government. According to the Wall Street Journal, Commerce Secretary Howard Lutnick, who previously ran financial firm Cantor Fitzgerald, has ties to Tether. Cantor holds most of Tether’s U.S. Treasury investments and even invested in the company using a convertible bond. Lutnick transferred ownership of his shares to his children when he joined the Trump administration.
Meanwhile, U.S.-based rival Circle is gaining ground. The company went public recently and saw its stock price jump more than 50% right after the GENIUS ACT passed the Senate. Circle’s stablecoin is smaller than Tether’s but is already following the kind of rules outlined in the bill. If the GENIUS ACT becomes law, companies like Circle may gain a big edge over competitors who aren’t willing to adapt.
Also Read: US Senate’s New Crypto Bill Challenges SEC, Favors CFTC
