Tether faces regulatory challenges as Genius Act passes

Tether’s flagship stablecoin USDT is expanding at a record pace, even as new U.S. legislation threatens to complicate its future in the world’s largest financial market.

Its market cap recently reached an all-time high of $160 billion, driven largely by soaring activity on the TRON (TRX) blockchain and growing demand from decentralized users across the globe. USDT’s supply on TRON has now topped $80 billion, surpassing the amount issued on Ethereum (ETH) by $6 billion, per an analysis published on July 18 by CryptoQuant contributor Darkfost.

More than $22 billion worth of Tether (USDT) has been issued on TRON alone since January, indicating a strong and persistent demand for dollar-backed tokens on fast, low-cost rails, particularly in emerging markets and peer-to-peer ecosystems. The network’s low fees and quick settlement times have made TRON the go-to blockchain for routine USDT transactions.

The bulk of USDT activity on TRON now consists of decentralized transfers, which often outnumber exchange-based volume by a factor of five to ten. This shift is part of a wider trend in stablecoin usage, where protocols, rather than platforms, are becoming the primary method of settlement.

Still, Tether now finds itself in a more complicated regulatory position. On July 17, the U.S. House of Representatives passed the GENIUS Act, which establishes clear reserve and licensing requirements for all stablecoin issuers doing business in the U.S. Although Tether is based in El Salvador, the legislation gives U.S. regulators authority to assess the compliance of foreign entities. 

Tether may be subject to increased regulatory scrutiny or be barred from U.S. markets or if it doesn’t meet these requirements, outcomes that could impact its international operations. The bill also opens the door for additional stablecoin issuers based in the United States, which could eventually pose a threat to Tether’s dominance.

Rivals like USD Coin (USDC), which are already more in line with regulatory expectations, may benefit from growing institutional interest in transparent, compliant alternatives. Regulation and increased competition may also put pressure on Tether as new players, such as banks and fintech companies, start issuing stablecoins under the new guidelines.

Despite these challenges, Tether’s strategy remains focused on expanding in non-US jurisdictions, especially in Asia and Europe. However, U.S. legislation may have international repercussions.

Global regulators may adopt Washington’s position, further tightening the conditions for Tether, as seen with delistings on European exchanges and growing demand for compliant alternatives like RLUSD.

For now, Tether’s ability to satisfy demand outside of the U.S. continues to be its greatest advantage,  even as pressure mounts to adapt to a changing regulatory landscape.