How the GENIUS Act could shake up Tether’s position

Author: Jack Inabinet Source: Bankless Translation: Shan Ouba, Golden Finance

The United States' GENIUS Stablecoin Act is expected to usher in a new era for the crypto industry, but this new legislation will also bring opportunities and challenges to the current largest issuer of crypto dollars.

The bill has passed the Senate vote and will be submitted to the House of Representatives for deliberation. If the bill is passed by the House of Representatives without amendment, it will then be sent to President Trump to sign into law!

Below we will dismantle the impact of the GENIUS Act on Tether and explore the new opportunities that the bill brings to compliant stablecoin competitors.

What is the GENIUS Act?

GENIUS is the abbreviation of "Guiding and Establishing National Innovation for U.S. Stablecoins Act", which was proposed by Tennessee Senator Bill Hagerty.

The bill will regulate payment stablecoins, which are digital assets that are anchored to a currency unit (such as the US dollar) and the issuer promises to exchange, redeem or repurchase tokens at a fixed value.

According to the bill, only "licensed payment stablecoin issuers" (that is, subsidiaries of insured banks or qualified issuers) and certain "foreign payment stablecoin issuers" registered in countries with regulatory standards equivalent to the GENIUS Act can issue payment stablecoins in the United States.

It is worth noting that the bill prohibits the payment of stablecoins to provide returns to holders, because such returns may make them considered securities. In addition, the bill does not apply to national legal tender (such as Federal Reserve notes, reserves, etc.), bank deposits or securities assets (such as tokenized stocks, real estate, etc.).

All payment stablecoin issuers must back their issued tokens with the following assets in a ratio of at least 1:1:

• U.S. dollar cash

• Federal Reserve deposits

• Demand bank deposits

• U.S. Treasury securities with less than 93 days to maturity

• Overnight reverse repurchase agreements

In addition, issuers may not misappropriate or re-hypothecate reserve assets; must publish monthly reserve certificates audited by a registered public accounting firm; and comply with the Bank Secrecy Act.

While payment stablecoins are theoretically much safer than bank deposits due to their high-quality reserve assets, the GENIUS Act explicitly states that such stablecoins are not protected by FDIC deposit insurance and issuers are prohibited from falsely advertising their tokens as “insured assets.”

In an important victory for peer-to-peer finance, the GENIUS Act does not prohibit individuals from self-custodying stablecoins, nor does it apply to legal transfers between two individuals (without an intermediary) or internal transfers of funds between an individual’s/institution’s U.S. and overseas accounts.

Tether’s status is shaken

While the GENIUS Act is a major milestone for stablecoin adoption in the U.S., not all established players will benefit from it. The passage of the bill will almost certainly undermine Tether's long-standing dominance in the stablecoin space.

According to Tether's latest quarterly reserve report (as of March 31, 2025), only 85% of USDT's reserves meet the compliance standards of the GENIUS Act at most, failing to meet the 1:1 full collateral ratio required for payment stablecoins.

In addition, Tether's auditor, BDO Italia, is not a U.S. registered accounting firm, and its reserve reports do not meet the audit standards set by the U.S. Public Company Accounting Oversight Board (PCAOB).

Even if Tether publishes monthly reports, their format cannot meet the requirements of the GENIUS Act.

Once GENIUS becomes law, USDT will be excluded from the real world financial system: It cannot be regarded as "cash equivalents" in accounting standards. It is not eligible as collateral for financial transactions. It cannot be used as an interbank settlement tool. Even more severely, three years after the bill is passed, all centralized digital asset service providers must stop providing USDT to US users.

While Tether may launch a new compliant stablecoin version that complies with the GENIUS Act (its CEO Paolo Ardoino was open to this in an interview with Bloomberg), the token will not be able to use "margin lending" as a means of issuance - one of the important ways USDT is currently issued.

Stablecoin regulation is about to be fully implemented in the United States. Although Tether is clearly aware of the regulatory impact on its future business, the company has not shown any willingness to make the USDT main body compliant.

Wide adoption in the real world has always been the "ultimate problem" in the crypto field. Once compliant competitors are approved and can be used in key scenarios in the financial and banking systems, USDT will be quickly replaced.

According to the GENIUS Act, American individuals can still hold USDT, but its usage scenarios will be strictly restricted, and the functional and legal advantages provided by compliant alternatives will far exceed the space that USDT can provide.