Galaxy Head of Research Comments on the GENIUS Act

Alex Thorn, head of research at Galaxy, believes the GENIUS Act could benefit Tether by allowing it to function under flexible conditions.

Thorn assessed that the bill would provide a pathway for Tether to register onshore without imposing a requirement for continued operations.

Limited Restrictions for Offshore Issuers

Based on the current text of the bill, if Tether opts against registration under the new framework, it will not be in violation of any laws.

The main restrictions on non-registered stablecoin issuers like Tether include prohibitions on interbank settlements and marketing their tokens as “stablecoins” in the US. Thorn noted the first restriction isn’t a significant concern for Tether but could hinder future institutional adoption.

The second restriction, introduced as an amendment during a recent Senate Banking Committee session, would prevent Tether from advertising USDT as a stablecoin in the US, though it wouldn’t hinder onshore trading.

The GENIUS Act proposes a regulatory framework for stablecoins, defining rules for issuance and oversight, which includes a 1:1 reserves requirement with US dollars, insured bank deposits, or short-term Treasury bills. The Senate Banking Committee approved the bill on March 13 with bipartisan support, making it ready for a full Senate vote.

Registration Pathways

The GENIUS Act offers Tether a clear option to register as a stablecoin issuer in the US, possibly through the Office of the Comptroller of the Currency (OCC). If it chooses this route, Tether could register USDT or create a compliant subsidiary.

If Tether does not register, it can still operate in the US by complying with requirements set by the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN), which it already meets.

Thorn noted the bill clarifies anti-money laundering protections. The US Treasury will designate a foreign, non-registered issuer as non-compliant only if it fails to comply with lawful asset freeze or seizure orders.

This designation isn’t automatic for all non-registered stablecoin issuers. Tether, with a history of compliance, has frozen at least 2,150 addresses, suggesting it won’t face immediate non-compliance classification under the GENIUS Act.

Additional Restrictions

Thorn pointed out new amendments to the bill that impose further limitations on offshore, non-registered stablecoins. Stablecoins issued by entities not registered under the framework would not be recognized as cash equivalents for accounting.

They would also be ineligible for margin or cash equivalence treatment by broker-dealers, swap dealers, futures commission merchants (FCMs), or derivatives clearing organizations (DCOs).

Thorn emphasized that while these measures may limit the financial and institutional use of unregistered stablecoins, they would not prohibit their existence or trading within the US market.