GENIUS Act fails Senate vote amid controversy, security concerns

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In March 2025, the GENIUS Act stablecoin bill passed a Senate Banking Committee vote by 18 votes to 6.

Last week, it failed to pass a full Senate vote with the 60 votes required to avoid cloture, only receiving 49 votes after some Democratic Senators withdrew their support. Republican Senators Josh Hawley and Rand Paul also voted against the bill.

Senators who voted against the current GENIUS Act expressed concerns about whether rules on foreign issuers, national security, and AML were strong enough. Some also expressed concern about the Trump family’s activities, including the launch of World Liberty Financial (WLF) and the USD1 stablecoin.

“While we’ve made meaningful progress on the GENIUS Act, the work is not yet complete, and I simply cannot in good conscience ask my colleagues to vote for this legislation when the text isn’t finished,” – Senator Mark Warner.

What does this mean for Tether?

As a foreign stablecoin issuer not domiciled in the United States, Tether faces significant challenges should the GENIUS Act win out over the alternative STABLE Act.

While the GENIUS Act mandates that only U.S.-domiciled issuers can issue payment stablecoins, the STABLE Act permits foreign issuers. Given how Senators from both parties didn’t feel the GENIUS Act went far enough to protect the U.S. financial system, the STABLE Act, being more permissive, is even less likely to pass a Senate vote.

Yet, the largest stablecoin issuer by market cap, Tether, is a foreign issuer based in El Salvador. Its parent company, Bitfinex, is based in the British Virgin Islands, a known tax haven, which won’t sit well with the AML/KYC rules and national security provisions in either stablecoin bill.

If Tether wanted to issue payment stablecoins in the United States, under the rules in the GENIUS Act, it would have to relocate to the United States, register with the federal regulator, and comply with strict reserve, redemption, and transparency rules.

Anyone who knows the history of Tether knows it won’t make the cut. In its relatively short history, the firm has avoided transparency, refused to prove its reserves, and even been banned from New York State for misleading statements.

GENIUS Act could reshape or break DeFi

The GENIUS Act would also have profound negative impacts on DeFi. As written, it treats yield-bearing stablecoins as securities, bringing them under Securities and Exchange Commission (SEC) jurisdiction. This would directly impact USDe, USDY, and sDAI, which are significant in the 2025 DeFi landscape. DEX’s may delist these tokens, centralized exchanges in the United States almost certainly would, and USD-pegged liquidity pools could run dry quickly.

On top of the liquidity crunch, DeFi protocols like AAVE and Curve might have to geo-block American users, drop support for banned stablecoins, and comply with securities laws. Even if they relocated offshore, they’d still face legal risk if they continued to serve American users.

Is there systemic risk in all of this? Absolutely, stablecoins like DAI and USDT are often used as collateral in lending markets and as input data for oracles. Should usage be restricted or one or more of them collapse, liquidations could spike, protocols could depeg or collapse like LUNA/UST, and a long bear market could follow.

Would that mean the end of DeFi in the USA? Not necessarily; we could see a more regulated version take its place. In the long run, this would likely involve KYC-gated pools using non-yielding stablecoins like USDC or PayPal’s (NASDAQ: PYPL) PYUSD.

Once again, code is not law

At CoinGeek, we have been shouting from the rooftops about how the ‘code is law’ mantra is a lie, and how by moving closer to TradFi in an attempt to suck in new capital and pump their coins, the industry was moving toward the very regulations that would force a reckoning.

While the GENIUS Act will likely be rewritten before it passes into law, and it may not even make it in the end, this article serves to illustrate how the law and regulations have dramatic, real consequences for the blockchain and digital currency industries.

Thus, in the long term, a blockchain, protocol or app that wants to scale and impact the real-world economy must comply with financial rules and regulations. The entire industry must reckon with this now and design products, platforms, and applications accordingly.

Watch: Reggie Middleton on DeFi, booms/busts & crypto regulation