Last year, Congress passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act to place the government’s stamp of approval on stablecoins, digital assets designed to maintain a stable value of $1. For every stablecoin in circulation, the company issuing the stablecoin must maintain an equivalent amount of real dollars or liquid assets in a reserve fund to meet investors’ requests to get their money back upon demand. But due to a major loophole in the GENIUS Act, foreign stablecoin giants like Tether — which is headquartered in El Salvador and handles about 60 percent of the more than $300 billion stablecoin market — can operate without the fundamental verification requirement. If Tether were to fail it could have ripple effects extending into traditional financial systems and collapse crypto markets, costing U.S. consumers billions of dollars.
U.S. Senator Jack Reed (D-RI), a member of the Senate Banking Committee, introduced the Foreign Stablecoin Transparency Act (S.3907) to prevent foreign stablecoin companies from escaping audits and potentially putting American consumers and the U.S. economy at risk. Reed’s bill would require foreign stablecoins backed by the U.S. dollar to undergo an audit, no matter where the company is located. Tether’s USDT tokens have been identified as helping terrorists and criminals move money and fund international crime and financial fraud. The Treasury Department’s 2024 National Terrorist Financing Risk Assessment notes that ISIS and other terrorist groups have moved towards using stablecoins, including Tether, to move or store funds.
According to Chainalysis: “stablecoins are now occupying the majority of all illicit transaction volume (63% of illicit transactions)” and “sanctioned entities have a greater incentive to use stablecoins due to challenges otherwise accessing the U.S. dollar through traditional means.” Tether is the world’s largest stablecoin company. The secretive crypto giant issues the world’s largest stablecoin called USDT and reportedly has over $187 billion worth of digital tokens in circulation and dominates the global market for dollar-pegged digital assets. Right now foreign stablecoin issuers are able to operate on little more than a pinky promise.
If foreign stablecoin issuers want the privilege of creating and handling the American people’s money, then they should open up their books for the American people to see. My bill sets up the same expectations for foreign stablecoin issuers that apply to large U.S. stablecoin companies, banks, and other payments companies. Tether needs to be transparent and it shouldn’t be allowed to profit from fueling crime and corruption.
Right now foreign stablecoin issuers are operating without enough oversight. As they continue to grow, the potential for an economic catastrophe grows right along with them unless they are properly regulated.
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