Introduction to Tether’s Compliance Challenges
Tether, the issuer of the popular stablecoin USDT, may encounter significant hurdles if new U.S. stablecoin regulations are enacted. According to a research report released by Wall Street bank JPMorgan, the company might need to liquidate some of its Bitcoin reserves to meet the requirements set forth in these proposed regulations.
Understanding the GENIUS Act and STABLE Act
The Senate’s Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act aims to establish federal regulations for stablecoins with a market capitalization exceeding $10 billion. Conversely, the House of Representatives has introduced the STABLE Act, which advocates for state-level regulations without conditions.
JPMorgan’s analysts highlighted that the STABLE Act imposes stricter reserve requirements, allowing only highly secure assets, such as insured deposits, U.S. Treasury bills, treasury short-term repos, and central bank reserves. The Senate’s GENIUS Act similarly permits money market funds and reverse repos, but both bills restrict reserves to high-quality, liquid assets.
Tether’s Current Compliance Status
Currently, Tether commands a dominant position in the stablecoin market, boasting a 60% market share with a market capitalization around $142 billion. However, JPMorgan’s report indicates that Tether’s reserves are only 66% compliant with the STABLE Act and 83% compliant with the GENIUS Act. These figures reveal a declining compliance ratio since mid-2022 as the supply of stablecoins has surged.
Under the proposed regulations, Tether will need to replace non-compliant assets with those that meet the new criteria. This transition would necessitate the sale of various non-compliant assets, including precious metals, Bitcoin (BTC), corporate papers, secured loans, and other investments, in favor of compliant assets like Treasury bills.
Tether’s Response and Future Outlook
A spokesperson for Tether stated that the company is closely monitoring the developments surrounding U.S. stablecoin legislation and is actively engaging with local regulators. They emphasized the importance of industry consultation and noted the uncertainty around which bill will ultimately prevail.
Despite the potential challenges, JPMorgan acknowledged that Tether’s Group equity exceeds $20 billion in highly liquid assets, generating over $1.2 billion in profits each quarter through U.S. Treasuries. This financial stability suggests that adapting to the new requirements could be manageable for Tether.
CEO’s Remarks and Transparency Concerns
Following the release of JPMorgan’s report, Tether CEO Paolo Ardoino took to social media, insinuating that the bank’s analysts were disappointed due to their lack of Bitcoin holdings. He expressed confidence in Tether’s ability to navigate the regulatory landscape.
However, the proposed regulations also call for greater transparency and more frequent audits of reserves, which could introduce additional complexities for Tether. As the regulatory framework continues to evolve, the implications for Tether and the broader stablecoin market remain to be seen.
