On Thursday, May 8th, the Senate voted to block the advancement of the GENIUS Act, a first-of-its-kind bill meant to solidify the regulatory framework for stablecoins. After losing support from several Democrats and three Republicans, the procedural motion received 49 votes for its advancement, 11 shy of the 60 needed.
The GENIUS Act (Guiding and Establishing Innovation for U.S. Stablecoins) seeks to establish a host of federal rules pertaining to stablecoins, which are digital tokens most often pegged to the dollar. In March the bill passed a Senate Banking Committee vote 18-6 and seemed destined to be advanced by the upper chamber.
The failure of the procedural vote came as a blow to the Congressional Republicans, all the more because it is their first major bill since American voters gave them a trifecta – the White House, Congress, and, effectively, the Supreme Court.
Trump’s Token Trouble
Democrats balked at supporting the bill, partially because news broke of a $2 billion investment by a Dubai-based company in Binance, utilizing USD1 for the transaction. USD1 is the newly created stablecoin of World Liberty Financial, a crypto company financially tied to President Trump.
Democrats have become increasingly wary of the president’s financial ties to crypto and are not keen to lend support to Trump’s use of a special-purpose investment vehicle. Several senators who had supported advancing the bill began to jump ship, as well as a few key Republicans, including Rand Paul (R-KY) and Josh Hawley (R-MO).
The bill’s sponsor, Senate Majority Leader John Thune (R-SD) said on the Senate floor, “If senators would like the opportunity to make further modifications to the bill, I encourage them to vote for cloture. Once we’re on the bill, we can discuss changes here on the floor. We’ve had an open process on this bill so far, so why stop now?”
Cloture would have advanced the bill to a vote, avoiding any potential filibuster, but the vote failed, capping off a week of frenetic negotiations held in secret where Senator Cynthia Lummis (R-WY) and Bill Hagerty (R-) trundled all over the Hill to coax nine Democratic holdouts.
Senators Say the Quiet Part Out Loud
After the procedural vote failed, Senator Ruben Gallego (D-AZ) indicated it was more a bump in the road than the end of it, telling Politico, “We need time.” Later, expressing Democrats’ apparent frustration with the process, Gallego expounded with more colorful language:
“You can’t try to f*** us and then say, hey, deal with it. That’s just not going to work, especially when you still need our votes.”
Meanwhile, Elizabeth Warren handed out a fact sheet to her colleagues detailing where she feels the bill falls short in policing corruption. Of her concerns, she calls to bar public officials and their immediate families from having a financial stake in crypto while laws are potentially being passed:
“Congress is writing laws that will sharply increase or decrease the value of stablecoin businesses, and the public should know that no one is making decisions to further their own financial interests, including the President of the United States. The current version of the GENIUS Act contains no such restrictions.”
Over in the House
On April 3rd, the House Financial Services Committee passed its own stablecoin bill, called The Stable Act (Stablecoin Transparency and Accountability for a Better Ledger Economy). While the Stable Act and the Genius Act share many similarities, they are not identical. One notable difference is the way each respective bill addresses foreign-issued stablecoins.
One of the main criticisms leveled at the Genius Act is the ostensible carve-outs for foreign-issued stablecoins. While there are imperatives for foreign-issued stablecoins to cooperate with law enforcement, regulations as a whole do not appear as strident as those applied to U.S.-based companies.
The language of the Stable Act is slightly more ambiguous. It maintains a more loose regulatory framework, allowing 18 months for foreign-issued stablecoins to adhere to U.S. law or a comparable jurisdiction.
The Elephant in the Room
The elephant in the room of course, is Tether. The El Salvador-based company issues USDT, which commands between 60% to 70% of all trading volume and earned Tether over $13 billion in profit last year.
Having run afoul of regulators over the years, Tether has remained resilient. In the past year, the company has actively courted Washington. Its strongest business ally is the investment bank Cantor Fitzgerald, which until recently was run by Commerce Secretary Howard Lutnick.
While the perceived foreign-issued stablecoin loophole of the Genius Act provokes the ire of Democrats, the reality of Tether’s outsized chunk of the market demands attention. If Tether were cut off from the U.S., major liquidity problems could quickly arise. That said, CEO Paolo Ardoino spoke recently of issuing a new U.S.-based stablecoin in the near future.
New Boss…the Same as the Old Boss
A majority of Democratic Senators were never on board with the Genius Act. Those who soured on the bill recently seem to have done so at least partially, swayed by the timing of $2 billion flowing into Trump’s World Liberty Financial’s stablecoin.
Senator Josh Hawley (R-MO) voted no on the Genius Act because he fears it gives big tech too much power to create their own currencies. However, prior to casting his vote, he made comments that suggested his position was malleable.
Enough Democrats, in the next vote, might prove to be equally malleable. Recently, Senate Minority Leader Chuck Schumer introduced the End Crypto Corruption Act, which would prohibit public officials and their families from profiting from crypto assets.
Deadlock on the Blockchain
The bill has very little chance of passing in a Republican controlled Senate. Some have suggested that the bill is more likely to serve as cover for pro-crypto Democrats as they eventually vote for a mildly revised Genius Act.
However, if this same group of pro-crypto Democrats instead insists on a provision in the Genius Act similar to the End Crypto Corruption Act, we could see a prolonged stalemate. Given Senate Republicans’ obsequiousness to the president, it seems unlikely that they would agree to such terms.
The House requires a simple majority to pass a bill. The Senate requires 60 votes, which by necessity has to include the support of Democrats. If the Democrats choose to play hardball, the bill could stall indefinitely.
If that happens, we are left with a similar regulatory environment to the Biden era: executive orders and SEC enforcement actions, all of which could be reversed in 4 years. Time will tell.
Author: Laird Dilorenzo
#Crypto #Blockchain #DigitalAssets #DeFi #Stablecoins #Tether
Laird Dilorenzo is a hatchet thrower and wordsmith.
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
See Also:
What is the GENIUS Act? Banks and Fintechs Rush Towards Stablecoins | Disruption Banking
Tether’s Big Bet: Stablecoins as the New Global Reserve Power | Disruption Banking
