🚨 Senate’s New Stablecoin Bill Would Help Tether, Hurt DeFi

The Senate held a procedural vote yesterday on a newly revised version of the GENIUS Act (S.1582) that wasn’t publicly available until after the vote.

Unchained found a copy, so now the crypto industry can assess these changes — some of which could set up a battle between centralized players and decentralized systems.

Tether in the Clear? Yes, Under This New Republican-Led Senate Stablecoin Bill

However, this new bill, uncovered for the first time, could hurt DeFi facilitators. 

For almost a decade, Tether, the largest stablecoin issuer in the world, has dodged allegations of incomplete reserves and rumors because it operated in the shadows outside of regulation. 

Now, Senate Republicans (and maybe Democrats) appear to be poised to remove that stigma by pulling Tether into U.S. jurisdiction. 

On Thursday, the Senate failed to push through a vote to try and begin formal debate on a newly revised version of the stablecoin bill. Some lawmakers said they hadn’t seen the text of the bill before the vote. 

On Friday, Unchained found a copy of the new version. Among several changes, the biggest one is that it extends U.S. jurisdiction to foreign stablecoin issuers like Tether if they serve U.S. users, regardless of where they’re based. This expands upon how the previous version also benefited Tether: by broadening the definition of which types of assets would qualify to back stablecoins. 

While this would be a massive boon to the $150 billion market cap stablecoin, other changes may be less appealing to different parts of the crypto industry — in particular DeFi service providers.

Below are the key differences between this new bill and the previous version reported by the Senate Banking Committee in March.

Key Changes in New GENIUS Act 

The new bill, which still goes by the name GENIUS Act (S. 1582), drops the two Democratic co-sponsors of the bill, Kirsten Gillibrand and Angela Alsobrooks, and includes only the Republican sponsor Sen. Bill Hagerty, and three additional co-sponsors, Sen. Tim Scott, Sen. Cynthia Lummis, and Sen. Dan Sullivan — all Republicans.

Since the bill is only sponsored by the GOP so far, this could affect the prospects of success in the Senate unless one or more Democrats also co-sponsor the bill. 

Read More: A House Hearing on Crypto? More Like a Big, Partisan Fight

The latest version of the GENIUS Act introduces three key changes with mixed implications for the crypto industry: 

• Foreign issuers held accountable: The new GENIUS Act adds in the concept of “extraterritoriality,” meaning if the stablecoin issuer is outside the U.S. but targets U.S. persons, they must comply with these stablecoin regulations. (This provision would end Tether’s ambiguous regulatory status. And, combined with the previous concession to expand the types of assets that could be used to back stablecoins, it further cements how the bill could benefit the company that is said to be the seventh-largest purchaser of U.S. Treasuries.) 

• Definition of digital asset service providers: The new definition would be broadened to include parts of the crypto ecosystem such as developers, validator nodes, and self-custodial wallet providers — raising new questions as to how this would impact the various facilitators of DeFi protocols and whether they would need to comply with Bank Secrecy Act and AML laws. Digital asset service providers can also now be held accountable if they use unauthorized stablecoins (stablecoins not from an issuer, such as decentralized stablecoins).

• Safe harbor authority: It grants the Treasury Secretary limited safe harbor authority to offer regulatory flexibility for small or experimental projects, but also allowing unilateral action during “exigent circumstances,” which some view as excessive executive power.  

It remains unclear exactly when Senate Democrats received or reviewed the updated bill, though these modifications likely reflect the behind-the-scenes negotiations prior to the vote. 

Read More: Congress Bickers Over Whether to Bail Out Stablecoins

Now that the full text is accessible, the crypto industry and other stakeholders can evaluate how this version diverges from the bipartisan bill passed out of Committee in March — and determine any policy implications for how stablecoins will be regulated in the U.S.

Some experts project there could be another vote to start debate on the stablecoin bill in the Senate by the end of the month. 

Unchained reached out to Tether, as well as Senators Hagerty, Scott, and Lummis, but did not receive a response by press time.

Watch the latest: Why the Senate Stablecoin Bill Stalled & What It Means for Crypto
With Kristin Smith and Amanda Tuminelli

Related content: 

• Stablecoin Bill Stalls in Senate as GOP Cries Foul Over Dem Resistance

• A House Hearing on Crypto? More Like a Big, Partisan Fight

• Congress Bickers Over Whether to Bail Out Stablecoins