The Winners and Losers of the GENIUS Act

On the 18th of July, 2025, the GENIUS Act became public law in the United States. Seeking to outline a breakthrough regulatory framework for stablecoin and its providers, the Act has the potential to pave the way for increased stablecoin use nationally— but whether its risks have been sufficiently mitigated remains a key concern.

The ‘Guiding and Establishing National Innovation for U.S. Stablecoins Act,’ or the GENIUS Act, seeks to bolster the everyday use of stablecoins in the U.S., potentially a move towards monopolizing the industry. Similar regulatory frameworks have not yet been extended for other forms of cryptocurrency, but they could soon follow. Stablecoins, however, are thought to be a safer, more approachable starting point. Unlike traditional cryptocurrencies, stablecoins are— per their name— meant to be ‘stable.’ Their value is not subject to the same fluctuations characteristic of cryptocurrencies, as stablecoins are pegged to tangible assets, notably the U.S. dollar. In short, every stablecoin purports to have one U.S. dollar backing it.

The stablecoin market is currently dominated by El Salvador-based issuer Tether, which maintains nearly a 70% share of the $250 billion market with its token USDT. In theory, the GENIUS Act presents as a substantial enhancement to the legitimacy of stablecoin giants such as Tether. The Act’s regulatory requirements, however, pose an obstacle for Tether’s successful integration into U.S. markets. As per the GENIUS Act, Stablecoin issuers have three years to bring their companies to compliance. Tether CEO Paulo Ardoino is putting his efforts elsewhere, revealing that Tether will introduce a new stablecoin, separate from USDT, to comply with local requirements.

In order to understand why Tether might have issues complying with the GENIUS Act, it is necessary to look both at the guardrails established by the Act and Tether’s evasive regulatory history. Firstly, the Act requires companies that issue stablecoins to register with a federal authority. A reciprocal arrangement is required for foreign payment stablecoin issuers, with regulations and supervision that are comparable to the U.S. regulatory and supervisory regime. The strength of this language largely depends on the interpretation of the word ‘comparable’: El Salvador’s National Commission of Digital Assets has been very lenient with Tether, and it is up to the U.S. to determine whether El Salvador’s regulatory body measures up to the U.S.’s approach. Regardless, Tether will face further scrutiny due to its extranational status and face ongoing monitoring over the course of its registration process, a level of attention Tether would previously have objected to.

A majority of the supervisory attention will be dedicated to ensuring transparency. Section 4 of the Act requires stablecoin issuers to hold 100% of their reserves in cash, U.S. Treasury securities, or similar securities, with all reserves subject to routine audits. Transparency is an investor’s key desire, and perhaps the most effective way to inspire confidence in a given company. Having 1:1 reserves is the fundamental appeal of stablecoins, so it should raise some red flags that this is the requirement Tether has evaded most ardently. Tether has never submitted to a third-party audit of its reserves, instead publishing quarterly ‘attestations’ of its assets through an affiliated firm. When more than $160 billion have been issued in USDT, the complete lack of independent confirmation of Tether’s reserve assets is not just a regulatory hiccup: it is one of the biggest hazards to the stability of the industry. Until such an audit is conducted, USDT should be considered as nothing more than an IOU backed by opaque promises rather than a tokenized currency.

So the GENIUS Act is not looking great for Tether. Who else is unlikely to reap its supposed benefits?

U.S. taxpayers are the first to come to mind. Shockingly, the GENIUS Act contains language that supersedes existing bankruptcy laws. If (and when) a stablecoin issuer goes bankrupt, rather than the creditor having priority in the cash-out, the GENIUS Act prioritizes the holders. Any positive sentiment this may carry is undermined by the realization that holders are also prioritized over the administrative claims of lawyers and other professionals involved in resolving the bankruptcy. Unsure of whether or not they will get paid for their services, such professionals are unlikely to perform the necessary work following the bankruptcy. The Act’s attempts to set up a bailout for stablecoin holders do not sufficiently mitigate the risks of owning privately issued stablecoins, upending existing laws to put taxpayers on the hook for bankruptcies that may never get resolved.

The Act’s scant anti-money laundering (AML) sections are also rather shocking, especially since stablecoin is known as the tender of choice for cyber criminals. In fact, stablecoins accounted for 63% of the $51 billion in illicit transaction volume in 2024. Accounting for the fact that Tether has a 70% market share of stablecoin, an oft-boasted statistic of theirs, the UN reminds the public that Tether’s “USDT is the grease that keeps the crypto crime gears turning.” In ensuring a dollar reference for digital funds and operating anonymized accounts, Tether essentially runs an illegal bank in violation of nearly every financial law, providing ‘bank’ accounts and U.S. dollar equivalents for criminal operations and sanctioned entities, including some $20 billion for Russian entities in violation of recent U.S. sanctions.

The ‘know your client’ (KYC) and AML requirements in the GENIUS Act are brief yet essential compliance components that Tether has fought against for years. Well aware that USDT-driven money laundering schemes make up a crucial slice of their exchanges, Tether has hoped to avoid strengthening its security policies to keep the traffic going. Instead, the company makes empty promises to “work with law enforcement to ensure [AML] compliance,” despite not being able to provide authorities with anything beyond an account number to shut down. Its anonymized transaction model allows criminals to launder dirty funds with no record of their identity, leaving behind an abandoned account that has already played its part in the cyber crime machine.

Rather than take actions to shut down platforms that support these exchanges, the GENIUS Act has given them a pathway— albeit a narrow one— into the U.S. economy. Deputy executive director of Transparency International Scott Greytak warns that “by failing to close known loopholes and protect America’s digital dollar infrastructure, Congress has risked making the U.S. financial system a global haven for criminals and adversarial regimes to exploit,” highlighting the hasty approach that was taken in passing this law. Whether the quick turnaround is linked to the $250 million donated by the crypto lobby in last year’s elections, or President Trump’s newly-launched stablecoin USD1, it is worth looking twice at when considering who this law is really meant to protect.

The GENIUS Act could have been a step in the right direction. The foundations for strong regulatory guidance are there, and they will likely be the basis for further regulation in the cryptocurrency industry. It is unfortunate to see such potential stunted by misguided priorities. The limited scope of the GENIUS Act, due to weak language and inexact definitions, poses significant risks to the greater U.S. economy. The primary focus of the Act should have been to safeguard investors through stringent regulation, balancing consumer protections with a push for further in-field innovation. Instead, the Act’s language pushes some of this responsibility to the side, prioritizing rapid growth at all costs. The obsession with becoming industry leaders has made this Act pass through the U.S. Senate and Congress far too quickly, its legal standing a false promise of safety to new investors who are now less likely to do the necessary research on the enduring risks.

Image by Elena Koestel