Tether Faces Potential Compliance Challenges Under New U.S. Stablecoin Regulations

Overview of Regulatory Proposals

The U.S. Senate's GENIUS Act and the House's STABLE Act aim to regulate stablecoins, with the GENIUS Act targeting stablecoins with a market cap exceeding $10 billion and the STABLE Act focusing on state-level oversight. Both bills mandate high-quality, liquid assets for reserves, with the STABLE Act restricting reserves to insured deposits, U.S. T-bills, treasury short-term repos, and central bank reserves. The GENIUS Act also permits money market funds and reverse repos.

Tether's Current Compliance Position

Tether, holding a 60% market share in the stablecoin sector with a $142 billion market cap, currently has reserves that are 66% compliant under the STABLE Act and 83% under the GENIUS Act. These compliance levels have dropped since mid-last year due to increased stablecoin supply. To meet the proposed regulations, Tether may need to replace non-compliant assets, such as precious metals, bitcoin, corporate paper, and secured loans, with qualifying ones.

Potential Impact on Tether's Operations

JPMorgan analysts warn that Tether could face operational challenges if the new regulations are enacted. The company might need to sell off non-compliant assets to align with stricter reserve requirements. Tether holds a significant amount of bitcoin in its reserves, which it began accumulating in 2023 as part of a profit allocation strategy. However, it remains unclear whether Tether will need to liquidate these holdings to comply with the regulations.

Tether's Response to Regulatory Concerns

A Tether spokesperson confirmed the company is actively engaging with regulators and monitoring the progress of the stablecoin bills. CEO Paolo Ardoino dismissed JPMorgan's concerns, arguing that the analysis overlooks Tether's substantial group equity and liquid assets, which he believes will facilitate compliance with new regulations. Ardoino also criticized JPMorgan's assessment of Tether's reserves and regulatory challenges.

The proposed regulations, expected to be enacted later this year, could pose significant challenges for Tether. However, the company remains proactive in addressing regulatory developments.