Congress Advances Bill to Regulate Stablecoins, Challenging Tether

The U.S. Congress is advancing the “GENIUS Act,” a bill aimed at regulating stablecoins, which are digital assets pegged to the U.S. dollar. The bill has passed the Senate and is now awaiting action in the House of Representatives. If enacted, it will impose strict rules on stablecoin companies operating in the U.S., requiring them to back their coins with safe assets like cash or short-term government bonds and publish yearly audited financial statements.

This poses a significant challenge for Tether, the world's largest stablecoin issuer with $156 billion worth of coins in circulation. Tether currently uses a mix of assets, including Bitcoin and gold, to back its coins and does not provide full public audits. According to Scott Armstrong, a former federal prosecutor, the new requirements leave no room for ambiguity, forcing Tether to adapt or risk being excluded from the U.S. market.

Tether has not officially responded to requests for comment, but CEO Paolo Ardoino has suggested that the company might launch a separate, U.S.-specific stablecoin to continue operating in the market. Additionally, Tether has moved its headquarters to El Salvador and obtained a license to offer crypto services there. The Senate version of the bill provides a three-year compliance period, while the House version offers only 18 months. Both versions must be aligned before President Trump can sign it into law. The bill also mandates that firms work with law enforcement, freeze assets tied to crime, and report suspicious activity, similar to regular banks.

Tether has faced scrutiny before, settling a case with the New York Attorney General in 2021 over an alleged $850 million shortfall. Since then, Tether has released quarterly updates about its reserves, but these are not full independent audits. Critics argue that this level of transparency is insufficient under the new rules. Tether could potentially leave the U.S. market entirely, as it did earlier this year in the European Union after similar regulations were introduced. Most Tether trading already occurs outside the U.S., particularly in Asia and Latin America, on foreign crypto exchanges.

Despite these challenges, Tether has influential allies in the U.S. government. 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 traction. The company recently went public and saw its stock price jump significantly after the GENIUS Act passed the Senate. Circle’s stablecoin is already compliant with the rules outlined in the bill, positioning it to gain a competitive edge if the legislation becomes law. Companies like Circle may benefit from the new regulations, potentially outpacing competitors who are unwilling or unable to adapt.