Global Largest Stablecoin Issuer Tether Faces New Regulatory Challenges
The global largest stablecoin issuer Tether has long evaded accusations of incomplete reserves and rumors; however, the newly revised GENIUS Act appears poised to bring Tether under U.S. jurisdiction, even if the company is not registered in the United States, it must still comply with regulations. Some experts predict that the Senate may vote again on the stablecoin bill at the end of this month to initiate debate.
Will Tether Escape Under the Revised GENIUS Act?
For nearly a decade, Tether, the world’s largest stablecoin issuer, has avoided allegations of incomplete reserves, operating quietly outside regulatory oversight.
(The U.S. Stablecoin Bill is Promising, JPMorgan Questions Tether’s Insufficient Reserves, Can the USDT Market Abandon It?)
The new GENIUS Act seems ready to bring Tether under U.S. jurisdiction, even if the company is not registered in the U.S., it must be included in the regulations. Although Tether CEO Paul Ardoino recently stated that Tether plans to launch new stablecoin products in the U.S. by the end of this year or early next year. He emphasized that Tether is actively collaborating with law enforcement to seek regulatory support, and Tether is developing a product for the U.S. that is different from the existing USDT to comply with U.S. market regulations and demands.
But can USDT really bypass regulations as a result?
What Are the Differences Between the New and Old GENIUS Acts?
Last Thursday (5/8), the Senate attempted to formally debate the new amended version of the stablecoin bill.
Here are the main differences between the new bill and its predecessor as summarized by Unchained.
Initiated Solely by Republicans
The new bill is still called the GENIUS Act, but it has a new bill number, S. 1582, which has removed the two Democratic co-sponsors – Senators Kirsten Gillibrand and Angela Alsobrooks, now only including Republican co-sponsor Senator Bill Hagerty, along with three other Republican co-sponsors – Senators Tim Scott, Cynthia M. and Dan Sullivan.
Since the bill is currently initiated solely by Republicans, unless one or more Democrats co-sponsor the bill, it may affect the prospects for the bill’s success in the Senate.
Inclusion of “Extrajurisdictional Authority”
The new GENIUS Act introduces the concept of “extrajurisdictional authority,” which means that if a stablecoin issuer operates outside the U.S. but targets U.S. citizens, they must comply with these stablecoin regulations.
Exclusion of DeFi Participants
The newly revised definition adds to the exclusion list of the proposed legislation. The version from March indicated that the proposed law does not apply to “distributed ledger protocols” or blockchains, nor to businesses involved in the development, operation, or engagement with self-custodial software interfaces. The version released on Friday now includes exclusions for immutable and self-custodial software interfaces; businesses involved in validating transactions or operating distributed ledger nodes; or participating in liquidity pools or other similar mechanisms that provide liquidity for peer-to-peer transactions. These changes aim to protect DeFi participants from being ensnared.
Three-Year Transition Period for DASP
In previous versions of the GENIUS Act, digital asset service providers were prohibited from offering payment stablecoins not issued by licensed payment stablecoin issuers, with licensed issuers limited to those with 1:1 reserve backing. Exchanges like Coinbase and Binance, as well as custodians like BitGo, would also be subject to these new stablecoin regulations.
The new bill announced on Friday will grant such companies a three-year period to comply with these requirements, during which, for example, Coinbase must remove decentralized stablecoins like Dai from its listings.
Granting Limited Safe Harbor Powers to the Treasury Secretary
It grants the Treasury Secretary limited safe harbor powers, providing regulatory flexibility for small or experimental projects, but also allows unilateral action in “emergency situations,” which some may view as excessive executive power.
Some experts predict that the Senate may vote again at the end of this month to initiate debate on the stablecoin bill.
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