With Trump officially signing the GENIUS Act at the White House, this marks the first time the United States has officially established a regulatory framework for digital stablecoins. This also means that many stablecoin issuers face a new round of challenges. Many people are likely unfamiliar with the GENIUS Act and may have the following questions:

• What regulatory measures does the US GENIUS Act mention regarding stablecoins?
• What impact does the Act have on USDT and Tether?
• Can Tether take appropriate countermeasures?
• What is the difference between this Act and Hong Kong's Stablecoin Act?

With years of experience in cross-border blockchain compliance, the Crypto Salad team will address the above questions one by one.

(Image source: CCTV program official website)

I. What exactly does the GENIUS Act say?

First, the Crypto Salad team will take you through the GENIUS Act. The GENIUS Act, also known as the "Stablecoin Act," aims to establish a comprehensive legal and regulatory framework for payment stablecoins in the United States to promote financial innovation, protect consumers, strengthen monetary sovereignty, and maintain financial stability. The following is a brief introduction to the regulatory framework of the GENIUS Act:

1. The Act's Core Definition and Scope:The Act primarily regulates payment stablecoins, which are defined as digital assets used for payment or settlement and pegged to a fixed monetary value.The Act requires that only "approved payment stablecoin issuers" can issue stablecoins in the United States. Approved issuers must be subsidiaries of insured depository institutions, federally qualified non-bank payment stablecoin issuers, or state-qualified payment stablecoin issuers.(Act basis:GENIUS Act, Section 2(22))

2. The Act's Regulatory Framework:The Act establishes a unique dual-track regulatory system.For stablecoins with an issuance volume of more than $10 billion, the Federal Reserve's regulatory framework for depository institutions and the Office of the Comptroller of the Currency's framework for non-bank issuers will apply. For issuers with an issuance volume of less than $10 billion, state regulatory options are available. The Act's Reserve Requirements: One of the Act's most important consumer protections is the 100% reserve requirement. Issuers must hold at least one dollar of permitted reserves for each dollar of stablecoins. Permitted reserves include: coins and currency, bank deposits, short-term Treasury bills, repurchase agreements, money market funds, and central bank reserve deposits. (Act reference: GENIUS Act, Section 4(a)(1)) 3. The Act's Transparency and Disclosure Requirements: The Act requires issuers to establish and disclose stablecoin redemption procedures and to regularly report outstanding stablecoins and the composition of their reserves. (Act Source: GENIUS Act, Section 6(a)(2))

4. National Security and Anti-Money Laundering Provisions of the Act:The Act classifies payment stablecoin issuers as financial institutions under the Bank Secrecy Act, which means they must: maintain effective anti-money laundering and sanctions compliance programs; keep appropriate records of stablecoin transactions; monitor and report suspicious activity; implement policies to block, freeze, and deny transactions that violate federal or state law; and establish a customer identification program. (Act Source: GENIUS Act, Section 8(a))

II. What impact does the Act have on USDT and Tether?

Let's first explain what USDT is.USDT is one of the most representative stablecoins in the current cryptocurrency market, and its full name is Tether. Issued by Tether, USDT aims to maintain its value by pegging it to a fiat currency (primarily the US dollar). It serves as a crucial liquidity tool and store of value in the cryptocurrency market. USDT's core design pledges to deposit $1 in a bank account as a reserve for every USDT issued, theoretically maintaining a 1:1 peg. Users can convert USDT into US dollars at any time, ensuring currency stability. Compared to traditional cross-border remittance methods, USDT offers faster transactions, relatively low fees, and is not restricted by geographic location or bank hours, enabling more efficient cross-border fund transfers.

(Image source: CoinMarketCap)

Based on the content of the bill, it is certain that it severely restricts the development of USDT. The GENIUS Act is a US law, and USDT is also a US product. Once enacted, based on the aforementioned content of the GENIUS Act, Tether will almost certainly not be able to fully meet compliance requirements. Therefore, in the future of the stablecoin market, Tether's market share will only continue to be eroded until a replacement emerges. Even if Tether and USDT still have a place in the future stablecoin market, USDT will likely only be used in specific applications.

As to why Tether cannot meet these requirements, the Crypto Salad team will review the bill's core content:

• First, the bill clearly states that stablecoins are not subject to the securities and commodities regulatory system, but are primarily regulated by the banking system.

• Second, the bill requires that reserves must be high-quality liquid assets, such as US dollar cash, Federal Reserve deposits, bank demand deposits, Treasury bonds maturing within 93 days, or overnight reverse repurchase agreements. Issuers of approved payment stablecoins must maintain reserve assets equal in value (1:1) to the stablecoins they issue to support their circulating payment stablecoins. (Act: GENIUS Act, Section 4(a) (1))

• In addition, issuers of permitted payment stablecoins with a combined total issuance of more than $50 billion and that are not subject to the reporting requirements of the Securities Exchange Act of 1934 must prepare annual financial statements in accordance with generally accepted accounting principles (GAAP) to disclose any related-party transactions; (Act: GENIUS Act, Section 3(10)(A))

(Image source: CCTV program official website)

• Fourth, anti-money laundering and KYC (Know Your Customer) are core regulatory requirements for the financial industry and compliance. These procedures verify customer identities, assess risks, and strictly prevent illegal activities such as money laundering, terrorist financing, and fraud. Issuers are prohibited from misappropriating reserves and must publish monthly reserve certificates audited by a registered accounting firm. They must also comply with the Bank Secrecy Act. (Act basis: GENIUS Act, Section 14.) 3(5)(A)）

• Fifth, the Act grants a super priority to stablecoin holders. In other words, if the issuer goes bankrupt, the claims of stablecoin holders take precedence over all other creditors, thereby achieving a "priority right of repayment." This "priority right of repayment" also encourages more people to purchase the stablecoins issued by the issuer, while further guaranteeing the legitimate rights and interests of stablecoin subscribers. (Act basis: GENIUS Act, Section 10 (3))

As for Tether, the issuer of USDT, it cannot meet many of the requirements of the GENIUS Act.

First, the GENIUS Act requires full reserve backing, but USDT's current reserve requirement is only around 85%, which does not meet the GENIUS Act's standards. This could lead to price fluctuations in the stablecoin and a breakdown in user trust.

Second, Tether's auditor is BDO Italia, which itself does not meet the standards of the Public Company Accounting Oversight Board.

Third, Tether will also need to sell its non-compliant asset reserves, such as Bitcoin, precious metals, corporate notes, and secured loans, and replace them with compliant assets.

Furthermore, Tether's market capitalization is so high that it has reached the level that warrants direct federal regulation. Therefore, the Crypto Salad team believes that Tether will struggle to meet the monthly disclosure requirements and stringent anti-money laundering requirements (stablecoin issuers with a total value exceeding $50 billion and not legally required to file SEC reports are required to undergo annual financial audits).

In addition to Tether, Circle (issuer of USDC), Paxos (issuer of PAX and USDP), and Gemini (issuer of GUSD) are all subject to varying degrees of restrictions under the GENIUS Act, including requirements for reserve asset liquidity and disclosure audits. Therefore, the GENIUS Act affects more than just one issuer; it has a significant impact on the entire stablecoin market.

(Image source: CCTV program official website)

Under the GENIUS Act, if stablecoin issuers, such as Tether, consistently fail to meet the Act's requirements, they will face severe penalties.

First, if Tether fails to complete its U.S. entity registration or reserve rectification within the transition period, its USDT will be deemed an "illegal payment tool," and the issuance itself will constitute a violation of the law, and it may face criminal charges (Act based on: GENIUS Act, Section 4(a)(12)).

In addition, three years after the Act takes effect, any foreign stablecoin issuer (including Tether) that is not licensed by the United States will be prohibited from issuing, selling, or providing trading services in the United States. If digital asset service providers (such as exchanges) violate this regulation, they will face fines of up to US$100,000 per day, and Tether, as an issuer, may be included in the "non-compliant list" issued by the Treasury Department, resulting in its stablecoin being forcibly delisted from US platforms (Act based on: GENIUS Act, Section 18 (a)(4)).

Of course, for non-compliance with reserve assets (such as holding unlicensed assets), failure to disclose reserve reports on time, or violation of anti-money laundering obligations, the Treasury Department can impose a fine of up to US$1 million per day on Tether (Act based on: GENIUS Act, Section 18 (a)(4)).

Faced with so many adverse consequences, the implementation of the GENIUS Act can be said to have issued an ultimatum to stablecoin issuers like Tether.

(Image source: Congress.Gov)

III. What is the difference between the GENIUS Act and the Hong Kong Stablecoin Ordinance?

Now that Trump has officially signed the GENIUS Act, it has officially taken effect. Coincidentally, Hong Kong's Stablecoin Ordinance will also take effect on August 1, 2025. Both ordinances regulate stablecoins, a type of cryptocurrency. Many may be wondering, what are the differences between these two "stablecoin ordinances" from two different regions? In other words, if you want to issue a stablecoin in either region, what are the differences between the US and Hong Kong regulations? The following will answer your questions.

First, the entry requirements for issuers in the two jurisdictions differ. If registered in the US, they must be a US-registered entity or a foreign entity registered with the OCC (providing proof of regulatory equivalence in their home country) and must complete compliance rectification within three years; otherwise, they will be prohibited from entering the US market. Entities registered in Hong Kong, on the other hand, must be Hong Kong-registered companies or overseas banks recognized by the HKMA (such as HSBC and Standard Chartered). Non-bank institutions must have a paid-in capital of HK$25 million (banks are exempt).

Second, the reserve asset requirements differ between the two jurisdictions. The United States only allows cash and U.S. Treasury bonds maturing within 93 days as reserve assets, and prohibits investing in non-compliant assets such as corporate notes and crypto assets as reserve assets. Hong Kong requires that reserve assets must be strictly consistent with the anchor currency (for example, the Hong Kong dollar stablecoin must hold Hong Kong dollar cash or short-term bonds), and prohibits paying interest to holders, directly restricting the "interest-bearing stablecoin" business model. Third, the United States and Hong Kong have different requirements for transparency and audit standards. The United States requires monthly disclosure of reserve asset composition, market value and audit reports, and annual audits by the Public Company Accounting Oversight Board (PCAOB) certification agency. The CEO/CFO must sign a compliance statement (Act basis: GENIUS Act, Section 4(10)(a)(iii)).

(Image source: Foresight NEWS)