Tether's Compliance Adventure

USAT represents Tether's bet: they can achieve regulatory legitimacy for institutional users while maintaining flexibility for global retail users.

Written by: Thejaswini M A

Translated by: Block unicorn

Preface

In August this year, Bo Hines resigned from the White House Crypto Committee and quickly became the CEO of Tether's newly established US division. His mission is to launch USAT, a stablecoin compliant with the GENIUS Act. USAT will undergo monthly audits, its reserves will be held entirely in cash and short-term US Treasuries, and it will operate under full federal banking supervision.

Meanwhile, USDT continues to process over 1 trillion USD in transactions every month, with reserves including bitcoin, gold, and secured loans. These assets are managed through offshore entities that have never undergone a full audit.

The same company, two completely different product approaches.

Last year, Tether earned 13.7 billions USD in profit with its "seek forgiveness, not permission" model. In contrast, Circle went public at a 7 billions USD valuation by conducting due diligence and asking the right questions before advancing its business.

This announcement should have been a celebration.

After years of regulatory battles, transparency issues, and ongoing doubts about reserve backing, Tether is finally offering the US market what critics have long demanded: full compliance, independent audits, regulated custodians, and reserves held only in cash and short-term US Treasuries.

However, we find ourselves discussing regulatory arbitrage, competitive moats, and those delightfully awkward moments when revolutionary technology clashes with the established order, and everyone pretends it was always part of the plan.

It turns out that with enough creativity in corporate structure, you can serve two masters at once.

Before diving into USAT, let's first look at Tether's remarkable achievements with USDT. USDT has a circulating token value of up to 172 billions USD, processing over 1 trillion USD in crypto market transactions monthly. If Tether were a country, it would be the 18th largest holder of US Treasuries, with a cumulative holding of 127 billions USD in government bonds.

The company made 13.7 billions USD in profit last year—not revenue, but profit—placing it among the most profitable companies, surpassing many Fortune 500 companies.

All these achievements were made without full audits, comprehensive regulation, or the transparency that traditional financial institutions take for granted. Instead, Tether relies on quarterly "attestations" rather than full audits, and includes assets like gold, bitcoin, and secured loans in its reserves—assets not allowed under strict stablecoin regulations. Additionally, it mainly operates through offshore entities in Hong Kong and the British Virgin Islands.

This is the ultimate example of how, sometimes, great achievements can be built by completely defying regulators' preferences.

The Emergence (and Problems) of the GENIUS Act

Then, in July 2025, the GENIUS Act was introduced, the first comprehensive stablecoin regulatory framework in the US. Suddenly, the US market—the most profitable and influential crypto market in the world—had new, strict rules:

• 100% reserves in cash and short-term US Treasuries (excluding bitcoin, gold, or secured loans)
• Monthly independent audits, with attestations from the CEO and CFO
• Issuers must hold a US license and use a US-regulated custodian
• Full compliance with AML/KYC requirements, including freeze functionality
• No interest paid to holders
• Full transparency of reserve composition

Looking at this list and then at USDT's existing structure, the challenge is obvious. The law essentially draws a clear line between "foreign" and US 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 challenging for Tether, true compliance with the GENIUS Act would require the kind of transparency the company has long avoided. As of 2025, Tether still provides quarterly "attestations" rather than full audits. About 16% of its reserves are 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 launch an entirely new token instead of simply making USDT compliant?

Simply put, turning USDT into a compliant product is like trying to convert a speedboat into an aircraft carrier while it's still sailing. USDT currently serves 500 million users worldwide, who choose it precisely because it is not subject to strict US regulation. Many of these users are in emerging markets, where USDT provides access to dollars when local banking systems are unreliable or expensive.

If Tether were to suddenly impose US-level KYC requirements, freeze functionality, and audit protocols on all global USDT users, it would fundamentally change the nature of USDT's success. A Brazilian small business owner using USDT to hedge against currency volatility does not want to deal with US regulatory compliance, nor does a crypto trader in Southeast Asia need monthly attestations from the CEO.

But there is a deeper strategic reason: market segmentation. By creating USAT, Tether can offer a "premium" regulated product for US institutions while maintaining USDT as the "global standard" for other markets. It's like having both a luxury brand and a mass-market brand—one company, different products for different customers.

USAT's Value Proposition (As It Is)

So what exactly does USAT offer that USDC does not already provide? Tether's marketing is somewhat vague on this point.

The technical architecture supports this dual-track strategy. Both tokens use Tether's Hadron platform, allowing seamless integration with existing infrastructure while maintaining regulatory separation. Where legally permitted, liquidity can flow between the two systems, but compliance "firewalls" ensure each token operates independently within its jurisdiction.

USAT will be issued by Anchorage Digital Bank (a federally chartered crypto bank), with reserves custodied by Cantor Fitzgerald. It will fully comply with the GENIUS Act, including monthly audits, transparent reserves, and a range of regulatory requirements expected by institutional users. Under the leadership of former White House crypto advisor Bo Hines, USAT benefits from strong political support and Washington connections.

However, Circle's USDC already meets all these criteria. USDC has deep liquidity, mature exchange integrations, institutional partnerships, and a solid regulatory track record. It is already the stablecoin of choice for US institutions.

Tether's main advantage is... well, it's Tether. The company has built the world's largest stablecoin distribution network, holds a massive existing market share, and generates 13.7 billions USD in annual profit to support its growth. As CEO Paolo Ardoino said, "Unlike our competitors, we don't rent distribution channels, we own them."

Tether needs to build liquidity for USAT from scratch. This means convincing exchanges to list USAT, getting market makers to provide liquidity, and persuading institutional clients to actually use it. Even with Tether's deep pockets and vast distribution network, this is no easy task.

USDC controls about 25% of the global stablecoin market, but dominates the regulated US market. USDT has a 58% global market share but is largely excluded from the compliant US market.

The company is betting that institutional users need alternatives to mitigate concentration risk. If Circle or USDC encounters problems, institutions may seek other fully regulated options. In addition, Tether can leverage its existing relationships (such as with Cantor Fitzgerald) to offer better terms or services.

Circle's recent moves highlight the intensity of the competition. In June 2025, Circle successfully went public, launched Arc—a blockchain dedicated to stablecoin finance—and continued to expand global payment corridors. Circle's regulatory-first strategy is clearly paying off in institutional adoption.

But 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" and digital partnerships such as a 775 millions USD investment in Rumble. This infrastructure has been built over more than a decade and is not easily replicated.

Tether's strength lies in its global relationships and financial power. In the first half of 2025, the company generated 5.7 billions USD in profit, providing ample resources for market making, liquidity incentives, and partnership development. Unlike competitors who must "rent" distribution channels, Tether owns its own infrastructure.

USAT's greatest advantage may be compatibility. If it can work with existing USDT infrastructure, users won't need to overhaul their systems. For developers who have spent months integrating USDT, switching to another Tether token is much easier than starting from scratch with a completely different provider.

Some institutions or risk-averse users may simply want to hold multiple regulated stablecoins for diversification, reducing counterparty risk between Circle (USDC) and Tether (USAT).

The timeline is crucial here. USAT is scheduled to launch by the end of 2025, which means Tether has limited time to build liquidity, secure exchange listings, and establish market maker relationships. In financial markets, first-mover advantage can be decisive—users tend to choose established, highly liquid options over newcomers.

The timeline here is critical. USAT is planned to go live by the end of 2025, giving Tether limited time to build liquidity, secure exchange listings, and establish market maker relationships. In financial markets, first-mover advantage is crucial—users typically prefer mature and highly liquid options over newcomers.

Critics argue that USAT is essentially "compliance theater"—a way for Tether to enter the US market without addressing the transparency and operational issues of its core business.

This criticism has some merit. Tether's choice to launch USAT instead of making USDT fully compliant suggests the company values current operational flexibility over comprehensive regulatory legitimacy.

On the other hand, one could argue that this is exactly how the market should work. Different customer groups have different needs and risk preferences. US institutions require regulatory compliance and transparency, while emerging market users prioritize accessibility and low fees. Why shouldn't one company serve both segments with different products?

Conclusion

Tether's dual-stablecoin strategy reflects the broader contradictions in the crypto industry regarding regulation, decentralization, and institutional adoption. The industry increasingly faces the challenge of balancing crypto's original permissionless ethos with the need for regulatory frameworks to enable mainstream adoption.

USAT represents Tether's bet: they can achieve regulatory legitimacy for institutional users while maintaining flexibility for global retail users. The success of this strategy will depend on execution, market acceptance, and the stability of the ever-evolving regulatory framework.

The regulatory environment is still evolving. While the GENIUS Act provides some clarity, the specifics of its implementation and enforcement remain uncertain. Changes in administration or regulatory priorities could significantly impact stablecoin issuers' strategies.

More fundamentally, USAT raises key questions about the nature of Tether's initial success. Was USDT's dominance built on regulatory arbitrage that may no longer be sustainable? Or does it reflect true innovation in global financial infrastructure, with regulatory compliance able to facilitate rather than limit such innovation?

The answer to this question may ultimately determine whether USAT is Tether's evolution toward mature financial institutions or an admission of the fundamental limitations of its original model. In any case, the launch of USAT marks a new chapter in stablecoin competition and regulation.

The king is building a second kingdom. Whether he can rule both at the same time remains to be seen.