WAX and Tether Co-Founder Explores the Impact of the GENIUS Act
Disclaimer: The views expressed here are those of the author and do not necessarily represent the opinions of crypto.news’ editorial team.
This interview is part of a series featuring William Quigley, a cryptocurrency and blockchain investor, co-founder of WAX and Tether. It was previously conducted by Selva Ozelli, Esq, CPA, Author of Sustainably Investing in Digital Assets Globally, for Crypto.news in 2024. The first part discusses the prison sentences of Sam Bankman-Fried and Changpeng Zhao. Part Two focuses on cryptocurrency in banking, while Part Three anticipates the future of NFTs.
Summary
- The GENIUS Act, supported by President Trump on July 18, marks a new chapter in oversight.
- While it does not require blockchain usage, the Act introduces reserve, redemption, and compliance regulations that could revolutionize global finance, allowing foreign issuers like Tether to operate under strict conditions.
- William Quigley observes that the tokenization of the global financial system may experience delays, as the Act permits traditional financial systems to emulate stablecoins without blockchain technology.
- Quigley anticipates that corporate finance departments within multinationals will begin exploring stablecoin issuance, potentially leading to indirect blockchain adoption.
- However, complex tax implications and the lack of mandatory blockchain use could limit the effectiveness of stablecoins for global payments and impede broader financial tokenization.
In this interview, Selva Ozelli engages with industry leader William Quigley about the significance of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, enacted by President Donald Trump on July 18. This represents the first federal legislation governing USD-backed non-yield-bearing stablecoins, following Congressional approval and resulting in the longest recorded vote on July 17. This led to a valuation surge that pushed the digital asset industry beyond a $4 trillion market cap for the first time. The GENIUS Act is a landmark step towards solidifying the United States’ role in global finance and digital asset technology, instituting Federal and State oversight over USD-backed stablecoins, enforcing reserve requirements, regulating foreign stablecoin issuers, and implementing penalties for non-compliance, effectively reshaping the financial landscape and reinforcing President Trump’s status as the nation’s crypto president.
But will the GENIUS Act trigger swift tokenization of international financial markets? Here’s what William Quigley shared in the detailed Q&A below:
Selva Ozelli: What are your thoughts on the GENIUS Act in terms of its potential to enhance the tokenization of the global financial system, a topic we delved into in Part Two of your interview series for Crypto.news in 2024?
William Quigley: The GENIUS Act is both timely and essential for fostering the tokenization of the global financial system, notably through stablecoin issuance for USD transactions that will reinforce the global utility of USD. However, the Act primarily focuses on the regulation of stablecoin issuance and management, regardless of whether they are built on a blockchain. It sets a foundation for stablecoin operation without mandating blockchain technology for their creation or usage, even as it recognizes that many stablecoins are already on blockchains.
For instance, Tether (USDT), the first and most widely used stablecoin, was introduced in 2014 as “Realcoin,” operating on the Bitcoin (BTC) blockchain via the Omni Layer Protocol. Tether has since expanded to various other blockchains such as Ethereum (ETH) as an ERC-20 token, Tron (TRX) as a TRC-20 token, Solana (SOL), Avalanche (AVAX), Algorand (ALGO), and Polygon (MATIC), among others. This ensures that USDT transactions are recorded on a public, distributed ledger, enhancing transparency and allowing potentially quicker transactions.
By not requiring blockchain technology, the GENIUS Act enables financial institutions to utilize their existing digital payment ecosystems while branding them as “stablecoin” systems without necessarily using blockchain. This could lead them to impose higher fees on transfers without documenting transactions on a public, distributed ledger, ultimately undermining the advantages of transparency and efficiency.
Encouragingly, after eleven years since the launch of the first stablecoin USDT, a consortium of prominent U.S. financial institutions is now actively pursuing and developing a collaborative stablecoin initiative, driven by the increasing competition posed by established stablecoin advocates such as Tether and the desire to improve payment systems, irrespective of blockchain usage.
I believe progress towards the tokenization of the global financial sector has been delayed, largely because many U.S. financial executives have historically viewed Bitcoin and the foundational blockchain technology as instruments for illicit activities, lacking a clear understanding of these advancements.
For example, in 2018, Larry Fink, CEO of BlackRock, the world’s largest asset management firm, which launched a BTC ETF last year, remarked at the Institute of International Finance conference: “Bitcoin just shows you how much demand for money laundering there is in the world. It’s an index of money laundering.” This reflects the sentiments of an IRS Criminal Investigation Division official in 2013, who stated after shutting down a $6 billion digital asset exchange involved in money laundering: “If Al Capone were alive today, this is how he would be concealing his finances.”
Hopefully, there is now a greater understanding of blockchain technology within various global financial institutions.
SO: The GENIUS Act establishes reserve requirements and redemption approaches, as well as preventing USD stablecoin issuers from providing interest or yield, which blockchain technology could allow. How will this affect the tokenization of global financial markets?
WQ: The GENIUS Act emphasizes the importance of transparency and auditability of reserves, which blockchain technology could enhance, although its use is not mandated. Furthermore, the Act prohibits stablecoin issuers from offering interest or yield, meaning that holders of stablecoins governed by the Act will not receive interest or yield simply for holding them. Essentially, the Act regards USD stablecoins as payment instruments rather than investment vehicles.
As such, the Act may not accelerate the tokenization of global financial markets as much as I hoped, given that blockchain technology has the potential to transform not just cross-border transactions but also the ownership of commercial bank deposits, government and corporate bonds, money market fund shares, gold and other commodities, real estate, and a variety of assets and liabilities recorded on blockchains and other distributed ledgers, facilitating entirely new functionalities.
SO: How will Tether, recognized as a foreign USDT stablecoin issuer, be influenced by the GENIUS Act?
WQ: Tether, which operates the USDT stablecoin, has traditionally been registered in the British Virgin Islands and Hong Kong. Its parent company, Tether Holdings Limited, is based in the British Virgin Islands. This year, the company has moved its physical headquarters to El Salvador to function as a licensed Digital Asset Service Provider (DASP), bringing the CEO and co-founders to El Salvador.
El Salvador has enacted digital asset legislation known as the Digital Assets Issuance Law (LEAD), treating stablecoins as part of a comprehensive regulatory framework for digital assets, offering tax exemptions for activities related to digital asset development, which may also benefit stablecoin issuance and transactions.
As a foreign stablecoin issuer headquartered in El Salvador, Tether can now legally offer USDT within the U.S. market by complying with the GENIUS Act’s requirements for foreign issuers.
The Act allows foreign stablecoin issuers to operate in the U.S. under strict guidelines, including maintaining a regulatory framework similar to that of the U.S., registering with the OCC, and ensuring adequate reserves held in U.S. financial institutions to meet redemption requests from U.S. clients. Additionally, the issuer’s home country must not be subject to U.S. sanctions or be identified as a primary money laundering concern while also being technologically equipped to comply with the Act’s stipulations. El Salvador is not comprehensively sanctioned by the U.S. and has made substantial progress in enhancing its AML/CFT framework.
Non-compliance with the Act’s requirements could result in serious consequences, including heavy fines and potentially imprisonment in certain cases. The Act also grants regulators the authority to prohibit the trading of stablecoins that do not comply with the regulations and impose daily penalties for violations.
SO: What are your views regarding the GENIUS Act’s impact on corporate finance departments’ potential for increased blockchain adoption?
WQ: I believe many large multinationals, particularly in customer-facing technology sectors, will create digital asset treasury divisions and begin stablecoin issuance due to the GENIUS Act. This could lead to broader acceptance of stablecoins, indirectly promoting the adoption of blockchains that facilitate stablecoin issuance. However, I would like to mention Facebook’s (now Meta’s) originally named Libra project, later rebranded as Diem, which aimed to create a stablecoin for global payments and inclusivity, which I covered in a video:
Meta’s founder and CEO Mark Zuckerberg promoted the Diem stablecoin initiative—backed by companies like Shopify and Uber—as a means to empower the unbanked and bolster U.S. financial dominance. However, the initiative faced significant regulatory hurdles and concerns regarding its impact on monetary sovereignty, privacy, and financial stability.
Ultimately, Meta halted the Diem project, with its assets sold to Silvergate Bank in early 2022. Silvergate Bank, a California-based institution serving the digital asset sector, faced shutdown in March 2023 after turmoil and substantial deposit losses largely due to the collapse of FTX, a notable cryptocurrency exchange discussed in Part One of our interview series last year.
Although the Diem project has not launched between 2018 and now, it sparked legislative efforts that resulted in the GENIUS Act and heightened mainstream and institutional awareness of digital assets. Reportedly, Meta is considering using stablecoins for creator payouts across its social media platforms, which together encompass half of the global population, despite the challenges of facilitating innovation within large corporations. Despite ample resources and talent, sizable organizations often struggle to foster innovation among their staff. Nonetheless, it is vital for large entities like Meta to overcome these challenges to remain competitive and adapt in a rapidly evolving marketplace influenced by digital assets and AI, leveraging the GENIUS Act to offer a stablecoin to Meta’s nearly four billion creative users.
SO: Payments made using stablecoins may be subject to various taxes, including federal, state, and value-added tax (VAT), depending on their application and jurisdiction. Will these tax responsibilities deter users from utilizing stablecoins in cross-border transactions?
WQ: In the U.S., stablecoins are generally subject to federal taxes whenever they are traded, converted, or recognized as income, regardless of their stable value. The IRS classifies them as property rather than currency. Consequently, transactions involving stablecoins can trigger federal and state tax obligations, even with minimal price fluctuations. This requires that stablecoin payment activities be meticulously tracked and reported to the IRS and state tax authorities.
In cross-border scenarios, stablecoin users should be aware of tax treaties and recognize that stablecoins are not considered legal tender or currency for VAT purposes in several jurisdictions, including the UK. While stablecoins themselves may not fall under sales tax laws, the goods or services obtained using stablecoins might be subject to sales tax or VAT based on the jurisdiction, highlighting significant differences in VAT application.
For example, if a user employs a stablecoin to purchase a memecoin in an EU country regarded as a service, VAT would typically apply to the value of those goods or services, not to the stablecoins themselves. VAT regulations can vary significantly between countries, even within the EU.
Consequently, stablecoin users must fully understand the specific tax and regulatory frameworks in each operating jurisdiction and keep detailed records of costs and tax implications associated with such payment transactions.
SO: The regulatory framework for digital assets is continually evolving. There is a proposed U.S. bill, The Digital Asset Market Clarity Act of 2025, commonly referred to as the CLARITY Act, aiming to clarify the regulatory landscape for digital assets, which we discussed in Part Three of our interview series in 2024. Can I contact you for your insights if and when this legislation is enacted?
WQ: You are welcome to do so, Selva.