Big loser from ‘Genius Act’ is crypto giant Tether

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.

- Alexander Osipovich, Vicky Ge Huang & Angus Berwick

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 stable-coin 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.