Is Tether Too Big to Fail? The U.S. New Genius Bill Proposes Regulation of USDT

Global Largest Stablecoin Issuer Tether Faces New Regulatory Challenges

The global largest stablecoin issuer, Tether, has long evaded accusations of incomplete reserves and rumors. However, the new version of the GENIUS Act seems ready to bring Tether under U.S. jurisdiction, even if the company is not registered in the United States, it must still be subject to regulation. Some experts predict that the Senate may hold another vote on the stablecoin bill by the end of this month.

Can Tether Avoid the New GENIUS Act?

For nearly a decade, Tether, the world’s largest stablecoin issuer, has avoided accusations regarding incomplete reserves, operating quietly outside regulatory frameworks.

The new version of the GENIUS Act appears poised to bring Tether under U.S. jurisdiction, even if the company is not registered in the United States.

Although Tether CEO Paul Ardoino recently stated that Tether plans to launch new stablecoin products in the U.S. by the end of this year or early next year, he emphasized that Tether is actively collaborating with law enforcement to seek regulatory support. Tether is developing a product for the U.S. market that differs from the existing USDT to comply with U.S. regulatory requirements and market demands.

But can USDT truly circumvent regulation?

What Are the Key Differences Between the New GENIUS Act and the Previous Version?

Last Thursday (5/8), the Senate attempted to formally debate the new revised version of the stablecoin bill.

Here are the main differences between the new bill and the earlier version summarized by Unchained.

Launched Solely by Republicans

The new bill retains the name GENIUS Act but has a new bill number S. 1582. It removes the two Democratic co-sponsors, Senator Kirsten Gillibrand and Senator Angela Alsobrooks, and includes only Republican sponsors: Senator Bill Hagerty, along with three other co-sponsors—Senator Tim Scott, Senator Cynthia Lummis, and Senator Dan Sullivan—all of whom are Republicans.

Since the bill is currently sponsored only by Republicans, unless one or more Democrats co-sponsor the bill, this could affect its prospects for success in the Senate.

Inclusion of “Extrajudicial Jurisdiction”

The new GENIUS Act introduces the concept of “extrajudicial jurisdiction,” meaning that if a stablecoin issuer operates outside the United States but targets U.S. citizens, they must comply with these stablecoin regulations.

Exclusion of DeFi Participants

The newly revised definition has added exclusions to the proposed law. The March version indicated that the proposed law would not apply to “distributed ledger technology” or blockchains, nor to businesses engaged in developing or operating blockchain or self-custodial software interfaces. The version released on Friday now includes exclusions for immutable and self-custodial software interfaces; developing, operating, or engaging in businesses that verify transactions or operate distributed ledger nodes; or participating in liquidity pools or other similar mechanisms that provide liquidity for peer-to-peer transactions. These changes aim to protect DeFi participants from being caught up in the regulations.

Three-Year Transition Period for DASP

In the previous version of the GENIUS Act, digital asset service providers were prohibited from offering payment stablecoins issued by unlicensed payment stablecoin issuers, with licensed issuers limited to those backed by 1:1 reserves. Exchanges like Coinbase and Binance, as well as custodians like BitGo, would also fall under this new stablecoin legislation.

The new bill announced on Friday will grant such companies a three-year period to comply with this requirement, during which time, for example, Coinbase must delist decentralized stablecoins like Dai.

Limited Safe Harbor Authority Granted to the Treasury Secretary

The bill grants the Treasury Secretary limited safe harbor authority to provide regulatory flexibility for small or experimental projects but also allows unilateral action in “emergency situations,” which some may view as excessive executive power.

Some experts predict that the Senate may again vote on the stablecoin bill by the end of this month.

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