Tether’s free ride almost ended — Senate stalls bill that could have rocked DeFi

Tether’s reign as the unregulated kingpin of stablecoins just got a fresh lease on life — courtesy of the U.S. Senate’s failure to pass the GENIUS Act.

The cryptocurrency stablecoin almost ended its smooth business in the US, with several Senate Republicans and possibly some Democrats pushing to bring it under U.S. jurisdiction.

The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was far from radical. In fact, it was one of the more sensible crypto bills we’ve seen in years. Designed to bring transparency and accountability to stablecoin issuers, it laid out basic safeguards: licensing requirements, mandatory reserve disclosures, and federal oversight. Not exactly revolutionary, just responsible.

Luckily for Tether, the Senate failed to advance a vote to initiate formal debate on the newly revised GENIUS Act.

The revised GENIUS Act provisions raised questions among DeFi players

If you’ve followed the digital asset space for more than five minutes, you know Tether is everywhere — powering most crypto trades, providing liquidity to DeFi, and even acting as a quasi-central bank for some offshore markets. Yet, Tether has long been criticized for its lack of transparency and murky reserve practices.

This bill could have forced Tether and other issuers to play by clearer, safer rules. But instead, the Senate blinked.

Originally introduced by Senator Bill Hagerty (R-TN) in February, the GENIUS) Act was co-sponsored by Chairman Tim Scott (R-SC) and Subcommittee on Digital Assets Chair Cynthia Lummis (R-WY).

After receiving bipartisan support, Hagerty’s legislation fell 48-49 on the Senate floor on Thursday

Before the vote, Republican lawmakers revised the bill, adding a few provisions that some lawmakers claimed they had not read or reviewed beforehand.

Some even claimed the Republicans rushed the vote on the legislation and even called off negotiations prematurely. These factors and sentiments affected the vote, with several Democrats pulling their support for the bill.

Moreover, the revised bill does leave out the names of the two Democratic co-sponsors, Kirsten Gillibrand and Angela Alsobrooks. The new bill is now solely sponsored by Republicans, including only Senators. Bill Hagerty, Tim Scott, Cynthia Lummis, and Sen. Dan Sullivan.

However, the bill stands a better chance of advancing in the Senate if at least one Democrat signs on as a co-sponsor.

The new bill includes “extraterritoriality,” which would obligate foreign stablecoin issuers to follow U.S. regulations when offering their services to American customers. Unfortunately for Tether, this provision could mean the end of its regulatory gray area and the beginning of stricter oversight.

However, per previous stipulations, the bill supports stablecoin providers expanding to other types of assets, which could benefit the company in the long run.

Unlike the old version, the new bill also widens the scope of what constitutes a digital asset service provider, including developers, validator nodes, and operators of self-custodial wallets.

Nonetheless, the definition change raises concerns about its possible effect on different facilitators of DeFi protocols and whether they would need to comply with the Bank Secrecy Act and AML laws. Not to mention, Digital asset service providers can now be charged for using unauthorized like decentralized stablecoins.

Additionally, the new GENIUS Act allows the Treasury Secretary to ease regulations for smaller or pilot projects and to act alone in ‘exigent circumstances,’ raising questions about possible executive overreach.

Nevertheless, now that the bill is open to the public, the crypto community can gauge its advantages, possible impact on the industry, and how it differs from the bill approved by the Senate Committee in March.

The stablecoin bill could be up for discussion again

While the stablecoin bill failed to advance, some analysts believe it’s only a temporary stalemate, and the bill may eventually pass.

Kara Calvert, vice president of U.S. policy at Coinbase, even commented, “It’s going to live to fight another day. […] Would I have liked to see the vote pass? Absolutely. Would that have made the day better? Absolutely. But I didn’t walk away thinking this bill is going to die, or this issue is going away.”

Senator Ruben Gallego, the top Democrat on the Senate’s Digital Assets Subcommittee, had sought to postpone the vote until Monday to give lawmakers additional time to evaluate the bill. However, his request was denied, and the bill failed to proceed.

Meanwhile, Cody Carbone, CEO of crypto advocacy group The Digital Chamber, acknowledged the bill’s vote-down on Thursday as a setback but believes it is still “far from a defeat.” 

Some analysts have also argued that there could be another vote to commence discussions on the stablecoin bill by the end of May.

If lawmakers are serious about protecting consumers, fostering innovation, and reclaiming leadership in financial technology, they can’t allow personal politics to derail essential legislation.

The GENIUS Act wasn’t just about Tether. It was about creating a blueprint for how digital dollars should operate in the world’s largest economy. That blueprint needs to be drawn soon, whether through this bill or another.