The Big Loser From the 'Genius Act' Is $156 Billion Crypto Giant Tether — WSJ

By Alexander Osipovich, Vicky Ge Huang and Angus Berwick

Congress is set to bring stablecoins into the financial mainstream, with legislation that has sparked a frenzy of interest from startups, banks and even retailers like Walmart that were previously wary of cryptocurrencies.

But the bill, known as the Genius Act, has a tough message for Tether, the No. 1 player in stablecoins: Shape up or get kicked out of the U.S. market.

The legislation, which passed the Senate last week, aims to bring more oversight to stablecoins — digital tokens with a fixed price, typically $1. Stablecoins function as a bridge from regular money to the crypto world, allowing people to make payments or send funds overseas using the technology behind bitcoin, but without bitcoin's wild volatility.

The Genius Act would require stablecoin issuers to underpin the value of their tokens with reserves of cash, short-term Treasurys and similarly safe assets. Larger issuers would be required to publish annual, audited financial statements. That is bad news for Tether, which commands roughly two-thirds of the stablecoin market with $156 billion in circulation.

Tether's stablecoins are partly backed by bitcoin and precious metals and the company has resisted being fully transparent about its finances. That means the legislation could make it untenable for Tether to keep operating in the U.S., said Scott Armstrong, a former federal prosecutor who handled crypto cases.

"It could definitely put Tether in a pinch," said Armstrong, now a partner 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."

Representatives for Tether didn't respond to requests for comment. Tether Chief Executive Paolo Ardoino has said the firm may launch a separate, locally issued stablecoin to maintain a foothold in the U.S.

The Senate legislation provides a three-year grace period for companies to be compliant with the new requirements. A companion bill under consideration in the House of Representatives gives issuers 18 months. Differences between the two would have to be reconciled before President Trump, who supports the Genius Act, can sign it into law.

With the prospect of a legal framework that could make stablecoins widely used for payments, banks have explored teaming up to offer a joint stablecoin, while Walmart and Amazon.com have also considered issuing stablecoins, The Wall Street Journal has reported.

Tether's stablecoins already are popular tools for international payments in emerging markets. They are also used for illicit activities such as sanctions evasion, researchers say.

One of the Genius Act's biggest beneficiaries is Tether's homegrown U.S. rival Circle, which went public on the New York Stock Exchange this month and is the issuer of the second-largest stablecoin.

But it has a long way to catch up. Tether made $13.7 billion in profit last year, largely by collecting interest on the Treasury bills that back its stablecoin and gains on its bitcoin and gold holdings. Circle, whose stablecoin has less than half the circulating supply of Tether's, earned $156 million in 2024. Circle shares jumped 34% the day after the Genius Act passed the Senate.

For years, Tether was dogged by worries that it didn't have sufficient reserves to underpin the $1 value of its stablecoins. In 2021, to settle an investigation by the New York attorney general that Tether had covered up an $850 million shortfall, the firm began releasing quarterly attestations about its reserves. Those attestations aren't the same as a full public audit.

Some of the assets Tether is using for reserves, including bitcoin, could lose their value during a broad market drawdown, increasing the risk that Tether holders might be unable to redeem their tokens for $1 apiece.

Under the Genius Act, stablecoin issuers must register with U.S. regulators — unless they are regulated by a foreign country whose rules are deemed to be similar to those of the U.S. Tether recently moved its headquarters to El Salvador and acquired a license there to provide crypto services. The firm was previously domiciled in the British Virgin Islands.

"El Salvador is, in this moment, the only country that has a proper, intelligent, very thorough stablecoin regulation," Ardoino told CNBC in a recent interview.

Tether could maintain its access to U.S. markets if the Trump administration deems El Salvador to have sufficiently strong stablecoin rules. The country's president, Nayib Bukele, has partnered with Trump on accepting deportees, and the two leaders had a warm meeting in the Oval Office in April.

Another Tether ally is Commerce Secretary Howard Lutnick, who led financial-services firm Cantor Fitzgerald before he joined the administration. Cantor holds most of Tether's Treasury portfolio, and has invested in Tether through a convertible bond. Lutnick agreed to transfer his ownership stake in Cantor to his children when he joined the cabinet.

Tether exited from the European Union earlier this year rather than comply with new EU rules on stablecoins. Similarly, the firm has the option to exit from the U.S. and double down on its thriving business in Asia, Latin America and other emerging markets. Most of the trading volume in Tether's stablecoins — which often exceeds $100 billion a day — is on platforms based outside the U.S., particularly Binance, the world's largest crypto exchange.

The Genius Act would require stablecoin issuers to fulfill law-enforcement requests to seize cryptocurrency, carry out bank-level customer checks and report suspicious transactions. Tether says it has complied with law-enforcement requests to freeze stablecoins used for illicit activity.

Under the Biden administration, the Justice and Treasury Departments were investigating Tether for possibly violating anti-money-laundering and sanctions rules, because of its stablecoins' alleged use by individuals and groups blacklisted by the U.S., from Russian arms dealers to Hamas. It couldn't be learned if the probes are continuing.

Ardoino visited the U.S. for the first time in March and told a conference in New York, "People were saying that if I was coming to the U.S., I would be arrested."

Write to Alexander Osipovich at alexo@wsj.com, Vicky Ge Huang at vicky.huang@wsj.com and Angus Berwick at angus.berwick@wsj.com