Tether Under Pressure as New US Stablecoin Law Demands Transparency

Tether Faces a Big Decision

The GENIUS Act is set to reshape how stablecoin issuers operate in the United States. Once the bill becomes law, companies will have 18 to 36 months to meet its rules. If they don’t, they will no longer be allowed to do business in the US. Tether, which issues USDT—the world’s largest stablecoin—now faces three paths. It can meet the new requirements, pull out of the US market, or create a separate, compliant stablecoin just for US users.

The GENIUS Act is trying to bring crypto closer to the rules of traditional finance. Stablecoins like USDT are less volatile than other crypto assets. That makes them appealing to people who want to avoid big risks. The new law pushes for clear rules on how these coins are managed, especially in terms of transparency.

Not everyone will benefit. While the bill is a win for the industry as a whole, it could hurt companies that have a poor record with audits and compliance. Tether falls into this category. It controls over 60% of the global stablecoin market, but that dominance may now come under pressure.

Source: X

Tether’s Past Transparency Issues

Tether has long been criticized for not being open about its reserves. For years, it avoided full audits by top accounting firms. This raised questions about whether each USDT was truly backed by real dollars. In 2021, Tether settled with the New York Attorney General after a probe showed it had lied about its reserves. Bitfinex, Tether’s affiliate, had lost $850 million and quietly borrowed from Tether’s reserves to cover up the problem. This meant USDT was not always fully backed as claimed.

After the case, Tether agreed to pay $18.5 million and stop doing business in New York. It began releasing quarterly reports on its reserves, but these are still not as complete as what the GENIUS Act demands.

The GENIUS Act doesn’t only ask for audits. It also wants stablecoin issuers to avoid risky behavior. This includes stopping illegal use of their coins.

Stablecoins have been used in sanctions evasion. There have been reports that actors in Russia and North Korea used USDT to get around US restrictions. In response, Tether has started working with law enforcement. The company now says it can freeze wallets involved in crime. Earlier this year, it froze $23 million in USDT linked to a banned exchange.

But cooperation is no longer a choice—it will be a legal requirement. The GENIUS Act says all stablecoin issuers must be able to freeze and seize coins. They must also run Anti-Money Laundering programs and check who their users are through Know Your Customer systems.

Tether’s Business Outside the US

While the US is a big player in finance, it’s not Tether’s main market. The bulk of its trading volume comes from Asia, Latin America, and other parts of the world. Binance, the world’s largest exchange, hosts most of Tether’s volume. The US plays a smaller role.

So, leaving the US might not be the end of the road for Tether. When the EU passed its strict MiCA regulations, Tether simply left that market. It might do the same in the US. Still, leaving could cost more than just volume.

The US market is powerful. It brings in large institutions, trusted investors, and a global reputation. If Tether walks away, it loses access to all of this. It would also look bad. People may assume Tether cannot meet basic standards. That could make users question its reliability and safety.

Circle, which issues USDC, could benefit from this. It is already compliant with many US and EU rules. If Tether leaves, Circle may grow. But catching up to Tether’s scale will still be tough. USDC’s supply is far behind USDT’s. Trust and compliance help, but they might not be enough to close that gap.

Source: X

The GENIUS Act is not final. The Senate has passed it, but the House of Representatives still needs to review and adjust the bill. The House version, known as the STABLE Act, includes some differences. The two chambers will need to agree on things like the compliance timeline and how the law applies to foreign companies.

This could open the door for compromises. A source close to the process said that both Tether and the US government might try to meet in the middle. Tether’s role in buying US Treasury bills gives it leverage. The demand from stablecoin issuers helps the US manage its debt. Forcing Tether out could hurt that flow of money.

Launching a Separate Stablecoin

Tether’s CEO, Paolo Ardoino, has hinted at a different option. The company may launch a new, fully compliant stablecoin for the US market. This new coin would meet all the GENIUS Act’s requirements. USDT would continue serving markets in Asia and beyond.

This plan is not perfect. Running two stablecoins adds costs. It creates confusion and makes compliance harder. Tether would need to track which users can access which coin, based on where they live. The extra work might not be worth it.

Tether is at a turning point. It can comply, leave, or split its business in two. Each option has trade-offs. The GENIUS Act is raising the bar for transparency and risk management. Tether must now choose whether to rise to that level or walk away from one of the world’s biggest financial markets.

Whatever it decides, the move will shape the future of stablecoins. Other issuers, investors, and regulators are watching closely. Tether’s next step could mark the beginning of a more open, responsible crypto space—or the start of a deeper divide between US rules and global crypto practices.