US Stablecoin Regulation: GENIUS Act’s Impact on Tether, Circle, and Traditional Finance

The United States stands on the brink of a substantial regulatory transformation for stablecoins, as the proposed Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act is set to redefine the digital asset sector. This legislative initiative seeks to embed stablecoins more deeply within the traditional financial system, a move that could erect significant hurdles for non-compliant entities while simultaneously paving new paths for regulated participants and broader mainstream adoption. The ramifications are particularly profound for Tether, the issuer of the world’s largest stablecoin by market capitalization, whose operational framework faces a direct challenge from the Act’s rigorous new mandates, a stark contrast to the strategic alignment of competitors such as Circle.

Core Mandates and Legislative Progress

At its essence, the GENIUS Act stipulates stringent standards for stablecoin issuers. These include requirements for transparent, fully-backed reserves, annual financial audits, and mandatory registration within the U.S. financial system. Furthermore, the legislation imposes rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, obligating companies to share data with law enforcement agencies and report any suspicious transactions. Having already successfully passed the Senate, the Act is now pending deliberation in the House of Representatives, underscoring a resolute commitment by U.S. lawmakers to establish comprehensive regulatory oversight of the rapidly expanding stablecoin market. As noted by Scott Armstrong, a former federal prosecutor with expertise in cryptocurrency cases, “There is no ambiguity in the requirements. To operate under the new regime, companies must adhere to all rules.”

Tether’s Strategic Crossroads

This evolving regulatory landscape presents a complex strategic dilemma for Tether. In contrast to Circle, which recently undertook an Initial Public Offering (IPO) on the New York Stock Exchange and maintains a more clearly compliant reserve structure, Tether has historically allocated a portion of its reserves to riskier assets, including Bitcoin and gold. Moreover, it has provided only quarterly attestations of its reserves, rather than full financial audits. Responding to the imminent regulatory changes, Tether CEO Paolo Ardoino has signaled that the company is considering two primary strategic avenues: launching a distinct, U.S.-registered stablecoin, or completely exiting the American market. This consideration aligns with a prior decision earlier this year when Tether discontinued operations in the European Union due to regulatory disparities. With its main operational base and licensing now firmly established in El Salvador, Tether reportedly harbors the expectation that the administration of President Donald Trump, a known advocate for the GENIUS Act, might acknowledge El Salvador’s regulatory framework as sufficiently equivalent to U.S. standards, thus allowing it to maintain access to the American market.

Advantages for Compliant Entities and Traditional Finance

Conversely, this regulatory shift appears to offer significant advantages for other market participants. Circle, the issuer of USDC, the second-largest stablecoin, stands out as a primary beneficiary. The company reported a $156 million profit last year, and its shares experienced a 34% increase following the Act’s passage through the Senate. Beyond existing cryptocurrency firms, the newfound legislative clarity has spurred considerable interest from leading traditional financial institutions, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, as well as major retail players like Walmart and Amazon. These corporations, previously hesitant about engaging with the cryptocurrency sector, are now actively investigating the launch of their own stablecoins. This signals a potential expansion of stablecoin utility across traditional finance and retail operations, operating within a well-defined regulatory framework.

Tether’s Financial Resilience Amid Persistent Scrutiny

Notwithstanding the escalating regulatory pressures, Tether maintains its position as a significant financial entity. The company disclosed a remarkable profit of $13.7 billion in 2024, with its total asset portfolio escalating to $150 billion, of which $115 billion is held in U.S. Treasury bonds. However, its substantial financial presence is consistently accompanied by intense scrutiny. For several years, media outlets and international organizations have identified Tether as a potential vehicle for sanctions circumvention and illicit financial activities. This history includes a 2021 settlement with the New York Attorney General’s Office regarding misleading disclosures about its reserves. Moreover, there have been reports of investigations by the Manhattan District Attorney’s Office and the U.S. Treasury Department into alleged money laundering and sanctions evasion activities involving Tether, although the current status of these inquiries remains unconfirmed.