Tether faces a choice: Comply or die?

Getting your Trinity Audio player ready...

Last month, United States President Donald Trump signed the GENIUS Act into law.

While many welcomed it as much-needed regulatory clarity, the Act forces Tether, the largest stablecoin issuer by market cap, to make a choice it has avoided for a decade now: comply with financial regulations or leave the U.S. market.

Let’s explore what the GENIUS Act requires and what it means for stablecoin issuers like Circle and Tether.

What the GENIUS Act requires

The GENIUS Act creates a licensing regime for permitted payment stablecoin issuers. It allows a three-year window during which issuers must comply with the conditions laid out in the Act or leave the U.S. market.

Conditions include:

• Holding 1:1 reserves in high-quality liquid assets.
• Monthly public reserve disclosures.
• Custody standards prohibiting the commingling of funds.
• Compliance with AML/KYC/CTF and sanctions rules.
• Bank-style supervision, reporting, and enforcement.

And that’s just scratching the surface. Essentially, stablecoin issuers are now financial institutions subject to the Bank Secrecy Act and must abide by all the same rules as entities like JPMorgan (NASDAQ: JPM) or Bank of America (BOA).

Issuers like Circle or Gemini, which have always attempted to comply with regulations, should be able to adapt. However, the new rules will cause significant problems for Tether.

The world’s largest stablecoin issuer has a checkered history involving links to convicted money launderers, fines, and banks from New York, and a repeated refusal to submit to a full audit and prove its reserves.

Can Tether survive the GENIUS Act?

Tether as an entity can likely survive the GENIUS Act, but whether it will be able to operate in the U.S. and other regulated markets is another question. There are three possible scenarios for the world’s largest stablecoin issuer:

Delay & Rebrand – Tether could choose to legally challenge decisions, lobby to soften rules, or rebrand. It could also potentially issue through an approved partner if one was willing to take the risk of associating with it.

Which will Tether choose? Time will tell, but it recently opted to exit the European Union market rather than comply with Markets in Crypto-Assets (MiCA) obligations. Whether or not it will do the same in America depends on the risk/reward scenario.

What happens if Tether leaves the United States?

The impact on markets depends on several factors, including whether other issuers can step in on time to prop up trading volume, how exchanges respond, and how orderly Tether’s exit from U.S. markets is.

Despite not knowing the full facts, there are a few predictable outcomes. For a start: liquidity will fragment, widening spreads between American and international order books, decentralized finance (DeFi) protocols will rotate out of Tether and seek alternatives, and there will be noticeable disruption to the status quo.

Tether is unlikely to pull the plug and exit America overnight; that would unleash carnage in the digital currency markets. That said, any exit, even an orderly one, will have an impact. Tether is currently responsible for tens of billions in daily volume across exchanges, and many traders hold their gains in USDT. Any switch out will be painful and could cause huge market swings.

Can Tether survive?

It can survive, but it’s going to have to come clean and adapt or face being closed out of more markets.

Remember, when Uncle Sam moves, his partners follow—expect lots of other countries to adopt similar rules to the GENIUS Act to make trade with the U.S. as seamless as possible.

Tether can survive if it adapts, but its current way of operating will doom it. This puts the firm on the horns of a dilemma: if it becomes fully transparent, that would reveal the truth about any past misdeeds, but if it doesn’t, it risks becoming a minor offshore player rather than the stablecoin giant it is today.

As the old saying goes, be sure your sins will find you out. The game is up for Tether, and it’s time to reveal its hand.

Watch: Teranode & the Web3 world with edge-to-edge electronic value system