Novacula Occami

The Senate dropped a new version of the Genius Act and unlike the House STABLE ACT, the Senate’s GENIUS Act is bending over backwards to find a way for Tether to operate in the US with loopholes.  

The original GENIUS Act had a massive loophole that would only bar Tether from being issued in the US, but not being used.  

That was so blatant that they’ve had to close it….a bit

Under the new Senate bill, Tether:

- would only be prohibited from being used in wholesale banking transactions (as if a bank would touch Tether)
- could be used in the US as long as it complied with any US lawful order (i.e., freeze assets)
- if they did not comply, the Treasury could only seek a court order to bar Tether from being used 
- failing that, the President could override any of this and give them free reign on national security grounds

The upcoming fight reconciling the House’s STABLE Act with the Senate’s GENIUS Act will the the fight for Tether’s future in the US

Let’s jump in

🧵👇

In the original Genius Act, the loophole was blatant - the bill only barred a non-US-authorized stablecoin from being issued in the US.  It did not bar its use by US persons (which all other stablecoin bills have done).  This would allow Tether to sit offshore and issue into the US all day and effectively gut the intent of the regulation

That loophole so blatant that it didn’t survive.  The new version of Genius has new limitations on an offshore, non-authorized stablecoin like Tether, but loopholes persist

First - Genius only bars non-authorized stablecoins (USDT) from being used in wholesale banking transactions.  That’s a performative rule as no bank would ever touch Tether.

But again, it doesn’t bar USDT from being used elsewhere in other transactions like trading - its core use

The bill now adds an obligation on non-authorized stablecoins to have the technological capacity to respond to US orders to freeze assets.  That’s a given and hardly a hurdle for Tether.  It also further explicitly recognizes that non authorized stablecoins can operate in the US 

The bill then adds a mechanism that if the non-authorized stablecoin issuer does not comply with a US lawful order, it can be designated as non-compliant 

And that non-compliance designation could results in $1M fines per day and Treasury seeking a court order to bar the stablecoin from being used in the US 

But in the end, there’s the Trump “out”….the President can waive any of the above on national security grounds 