Bankless: How the GENIUS Act Shakes the Tether Throne

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

The U.S. "GENIUS Stablecoin Act" is expected to usher in a new era for the cryptocurrency industry, but this new legislation will also present opportunities and challenges for the current largest issuer of crypto dollars.

The bill has passed the Senate vote and will be submitted to the House of Representatives for review. If the bill is passed in the House without modification, it will then be sent to President Trump for signing into effect!

Below, we'll break down the impact of the GENIUS Act on Tether and explore the new opportunities it presents for compliant stablecoin competitors.

What is the GENIUS Act?

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

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

According to the bill, only "licensed payment stablecoin issuers" (i.e., affiliates 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 within the United States.

It is worth noting that the bill prohibits payment stablecoins from providing yield to holders, as such yield may cause them to be classified as securities. Furthermore, the bill does not apply to national legal tender (such as Federal Reserve notes, reserves, etc.), bank deposits, or securities-type assets (such as tokenized stocks, real estate, etc.).

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

• US Dollar Cash
• Federal Reserve deposits
• Demand Deposits
• U.S. Treasury bonds with less than 93 days to maturity
• Overnight Reverse Repurchase Agreement

In addition, the issuer must not misappropriate or re-mortgage reserve assets; must publish reserve proofs audited by a registered public accounting firm every month; and comply with the Bank Secrecy Act.

Although 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 covered by FDIC deposit insurance, and issuers are prohibited from falsely advertising their tokens as "insured assets."

In a significant victory for peer-to-peer finance, the GENIUS Act does not prohibit individuals from self-custodying stablecoins, nor does it apply to legitimate transfers between two individuals (without intermediaries) or internal fund transfers between personal/institutional accounts in the US and overseas.

Tether's Position Shaken

Although the GENIUS Act is a significant milestone for the adoption of stablecoins in the United States, not all existing participants can benefit from it. The passage of the Act almost certainly weakens 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 the reserves for USDT meet the compliance standards of the GENIUS Act, failing to reach the 1:1 full collateral ratio required for issuing stablecoins.

In addition, Tether's auditing firm BDO Italia is not a U.S. registered accounting firm, and its reserve report does not comply with the auditing standards set by the Public Company Accounting Oversight Board (PCAOB).

Even though Tether releases reports every month, their format fails to meet the requirements of the GENIUS Act. Once the GENIUS becomes law, USDT will be excluded from the real-world financial system:

• Cannot be considered as "cash equivalents" in accounting standards.
• Not eligible as collateral for financial transactions
• Must not be used as an interbank settlement tool

Worse still, three years after the bill is passed, all centralized digital asset service providers must cease providing USDT to U.S. users.

Although Tether may launch a new compliant stablecoin version in line with the GENIUS Act (its CEO Paolo Ardoino has been open about this in an interview with Bloomberg), the token will not be able to use "margin lending" as a means of issuance — which is one of the important issuance methods for USDT currently.

Regulation of stablecoins is about to be fully implemented in the United States. Although Tether is clearly aware of the regulatory impacts its future business faces, the company has not shown a willingness to make USDT compliant.

The widespread adoption in the real world has always been the "ultimate challenge" in the cryptocurrency field. Once compliant competitors are approved and can be used in key scenarios within the financial and banking systems, USDT will be swiftly replaced.

According to the GENIUS Act, U.S. individuals can still hold USDT, but its use cases will be subject to strict limitations, while the functionality and legal advantages offered by compliant alternatives will far exceed what USDT can provide.