Tether’s Compliance Adventure

In August, Bo Hines resigned from the White House Cryptocurrency Advisory Council and quickly became CEO of Tether's newly formed US division. His mission was to launch USAT, a stablecoin designed to comply with the GENIUS Act. USAT would be subject to monthly audits, its reserves would be limited to cash and short-term U.S. Treasury bills, and it would operate under full federal banking supervision. Meanwhile, USDT continues to process over $1 trillion in transactions per month, with its reserves consisting of Bitcoin, gold, and collateralized loans. These assets are managed through offshore entities that have never been fully audited. Same company. Two completely different approaches to the same product. Tether earned $13.7 billion in profits last year by perfecting its "act first, ask questions later" model. Circle, by comparison, was valued at $7 billion when it went public because it did its due diligence and asked the right questions before moving forward. This announcement should have been a celebration. After years of regulatory wrangling, concerns about transparency, and persistent questions about its reserve backing, Tether finally gave the U.S. market everything its critics had long demanded: a fully compliant, independently audited, regulated custodian, and a reserve composed entirely of cash and short-term U.S. Treasuries. Instead, we're talking about regulatory arbitrage, competitive moats, and those "wonderful" moments when revolutionary technology collides with the established order, leaving everyone to pretend everything was as planned.

It turns out that with enough creativity in corporate structure, it's possible to serve two masters at once.

Before we delve into USAT, let's take a moment to examine the magnitude of Tether's success with USDT. We're talking about a product with $172 billion in tokens in circulation that processes over $1 trillion in monthly crypto market transactions. If Tether were a country, it would be the 18th largest holder of U.S. Treasury bonds globally, having accumulated $127 billion in government bonds. The company generated $13.7 billion in profits last year—not revenue, but profit—making it one of the most profitable companies, surpassing many Fortune 500 companies. All of this has been built without comprehensive audits, full regulatory oversight, or the kind of transparency that traditional financial institutions take for granted. Instead, Tether relies on quarterly “attestations” rather than comprehensive audits, and its reserves include assets like gold, Bitcoin, and secured loans—all of which are prohibited under strict stablecoin regulations. Furthermore, it operated primarily through offshore entities in Hong Kong and the British Virgin Islands.

This is a prime example of how you can sometimes build a massive entity by doing the exact opposite of what regulators prefer.

The Emergence of the Genius Act (and the Problems)

Then, in July 2025, the GENIUS Act, the first comprehensive stablecoin regulation in the United States, was introduced. Suddenly, the U.S. market—the most lucrative and influential crypto market in the world—had new, strict rules: 100% reserves in cash and short-term U.S. Treasuries (no Bitcoin, gold, secured loans) Independent monthly audits with certifications from the CEO and CFO Operated by a U.S. licensed issuer and a U.S. regulated custodian Fully AML/KYC compliant with freezing capabilities No interest paid to holders Full transparency in reserve composition

Compare this list to the current structure of USDT, and the challenge becomes clear. The law effectively draws a bright line between “foreign” and “U.S.-domestic” stablecoins. USDT, issued by Tether entities in the British Virgin Islands and Hong Kong, cannot simply flip a switch to become compliant. It would require a complete overhaul of its corporate structure, reserve composition, and operational framework.

More problematic for Tether, truly complying with the Genius Act would require the company to achieve the kind of transparency it has historically avoided. As of 2025, Tether still provides quarterly “certifications” rather than full audits. Approximately 16% of its reserves are held in assets explicitly prohibited by the Genius Act: gold (3.5%), Bitcoin (5.4%), secured loans, and corporate bonds. So why not just "fix" USDT? Why not just make USDT compliant instead of launching an entirely new token? The simple answer is that revamping USDT is like trying to transform a speedboat into an aircraft carrier at high speed. USDT currently serves 500 million users worldwide, who choose it precisely because it's free from strict US regulation. Many of these users are from emerging markets, where USDT provides access to US dollars when local banking systems are unreliable or costly. If Tether suddenly imposed US-level KYC requirements, freezing capabilities, and audit protocols on all USDT users worldwide, it would fundamentally alter the core product that makes USDT successful. A small business owner in Brazil using USDT to hedge against currency fluctuations doesn't want to deal with US regulatory compliance; nor does a cryptocurrency trader in Southeast Asia need monthly attestations from their CEO. But there's a deeper strategic reason: market segmentation. By creating USAT, Tether can offer a "premium," regulated product to US institutions while leaving USDT as the "global standard" to everyone else. It's like owning both a luxury brand and a mass market brand—the same company, offering different products to different customers. USAT's Value Proposition (If Any) So, what exactly does USAT offer that USDC doesn't already? This is where Tether's rhetoric gets a little murky. The technical architecture supports this dual approach. Both tokens leverage Tether's Hadron platform, enabling seamless integration with existing infrastructure while maintaining regulatory separation. Liquidity can flow between the two systems where legally permitted, but compliance firewalls ensure each token operates within its jurisdiction. USAT will be issued by Anchorage Digital Bank (a federally chartered crypto bank), with reserves held at Cantor Fitzgerald. It will be fully compliant with the Genius Act, with monthly audits, transparent reserves, and all the regulatory bells and whistles that institutional users supposedly require. Led by former White House cryptocurrency advisor Bo Hines, USAT will benefit from strong political support and connections in Washington. Circle's USDC, however, already has all of these qualities and has done so for years. USDC boasts deep liquidity, established exchange integrations, institutional partnerships, and a clean regulatory record. It's already the stablecoin of choice for US institutions. Tether's main advantage is... well, Tether itself. The company has built the world's largest stablecoin distribution network, holds a significant existing market share, and generates $13.7 billion in annual profits to support its growth. As CEO Paolo Ardoino puts it, "Unlike our competitors, we don't need to rent distribution channels. We own them." Tether will need to bootstrap liquidity for USAT from practically zero. This means convincing exchanges to list USAT, getting market makers to provide liquidity, and getting institutional clients to actually use it. Even with Tether's deep pockets and vast distribution network, this won't be easy. USDC controls approximately 25% of the global stablecoin market but dominates regulated US fund flows. USDT holds 58% of the global market share but has been largely excluded from the U.S. regulatory landscape. The company is betting that institutional users want alternatives to avoid concentration risk. If Circle or USDC stumbles, institutions might seek another fully regulated option. Additionally, Tether can leverage its existing partnerships—such as with Cantor Fitzgerald—to offer potentially better terms or services. Circle’s recent moves highlight the intensity of the competition. In June 2025, Circle successfully completed its initial public offering (IPO), launched Arc, a blockchain dedicated to stablecoin finance, and continues to expand its global payment corridors. Circle's regulation-first approach has clearly paid off in terms of institutional adoption. However, USAT also has certain advantages that USDC lacks. According to CEO Paolo Ardoino, Tether's global distribution network includes "hundreds of thousands of physical distribution points" as well as digital partnerships such as its $775 million investment in Rumble. This infrastructure took more than a decade to build and is difficult to replicate easily. Tether's strength lies in its global relationships and deep financial resources. The company achieved $5.7 billion in profits in the first half of 2025, providing ample resources for market making, liquidity incentives, and partner development. Unlike competitors who must "rent" distribution channels, Tether owns much of this infrastructure. USAT's greatest advantage may be its compatibility. If it works with the existing USDT infrastructure, users won't need to completely overhaul their systems. For developers who have spent months integrating USDT, switching to another Tether token is a much better option than starting over with a completely different provider. Some institutions or risk-conscious users may simply want to diversify by gaining exposure to multiple regulated stablecoins, thereby hedging counterparty risk between Circle (USDC) and Tether (USAT). Timelines are crucial. USAT is targeted for launch by the end of 2025, giving Tether limited time to build liquidity, secure exchange listings, and establish market-making relationships. In financial markets, first-mover advantage can mean the difference between success and failure—users generally gravitate toward established, liquid options over newcomers. Critics have argued that USAT is essentially a "compliance play"—a way for Tether to enter the U.S. market without addressing the core transparency and operational issues surrounding its business. This criticism has some merit. Tether's decision to launch USAT rather than fully compliant USDT does suggest that the company prioritizes its current operational flexibility over comprehensive regulatory legitimacy. But from another perspective, it could be argued that this is exactly how the market should work. Different customer segments have different needs and risk appetites. US institutions demand regulatory compliance and transparency, while users in emerging markets prioritize accessibility and low fees. Why can't a single company cater to both segments with different products? Tether's dual stablecoin strategy reflects broader tensions in the crypto industry over regulation, decentralization, and institutional adoption. The industry is increasingly facing the challenge of balancing the original permissionless spirit of cryptocurrency with embracing a regulatory framework that fosters mainstream adoption. USAT represents Tether's bet that they can achieve both—gaining regulatory legitimacy for institutional users while maintaining flexibility for global retail investors. The success of this strategy will depend on execution, market acceptance, and the stability of the evolving regulatory framework. The regulatory landscape remains fluid. While the Genius Act provides some clarity, its implementation and enforcement remain uncertain. Changes in government or shifting regulatory priorities could significantly impact the strategies of stablecoin issuers. More fundamentally, USAT raises key questions about the nature of Tether's initial success. Is USDT's dominance based on regulatory arbitrage? If so, this model may no longer be sustainable. Or does it reflect genuine innovation in global financial infrastructure, one that regulatory compliance can enhance rather than constrain? The answer to this question may ultimately determine whether USAT represents Tether's evolution into a mature financial institution or an acknowledgment of the fundamental limitations of its original model. Regardless, the launch of USAT marks a new chapter in stablecoin competition and regulation. The "King" is establishing a second "kingdom." Whether he can rule both simultaneously remains to be seen.