Disclosure
The opinions expressed in this article are those of the author and do not reflect the views of the editorial team at crypto.news. This piece serves as a continuation of a previous three-part interview series with William Quigley, a prominent figure in cryptocurrency and blockchain investments, co-founder of WAX and Tether. The initial series was conducted by Selva Ozelli, Esq, CPA, and author of Sustainably Investing in Digital Assets Globally, exclusively for Crypto.news in 2024. The first part dealt with the prison sentences of Sam Bankman-Fried and Changpeng Zhao, the second explored cryptocurrency and banking, and the third focused on the future of NFTs.
Summary
The recently enacted GENIUS Act, signed by President Trump on July 18, marks a significant shift in regulatory oversight. While the legislation does not mandate the use of blockchain technology, it introduces reserve, redemption, and compliance regulations that have the potential to transform global finance. This framework allows foreign issuers, such as Tether, to operate under stringent conditions. Quigley underscores that while the tokenization of the global financial landscape could face hurdles, the Act permits traditional finance systems to replicate stablecoin functionalities without the necessity of blockchain. He foresees a growing interest in stablecoin issuance from corporate finance departments of multinational companies, which may indirectly accelerate blockchain adoption. However, intricate tax implications and the absence of obligatory blockchain usage could hinder the efficiency of stablecoins in international payments and slow the overall progression towards comprehensive financial tokenization.
In this follow-up interview, Selva Ozelli inquires about the implications of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which President Trump signed into law on July 18, making it the inaugural federal legislation to regulate USD-backed non-yield-bearing stablecoins. The bill, which was passed after a record-long voting session on July 17, has contributed to a surge in the digital asset market, pushing total capitalization beyond $4 trillion for the first time. The GENIUS Act is a significant move to solidify the United States’ leadership in global finance and digital asset technology, imposing federal and state oversight on USD-backed stablecoins, setting reserve requirements for foreign stablecoin issuers, and instituting penalties for non-compliance, effectively marking Trump as the crypto president.
However, will the GENIUS Act catalyze a rapid tokenization of global financial markets? Here’s what William Quigley shared in a comprehensive Q&A session:
Selva Ozelli: Thoughts on the GENIUS Act and Tokenization
William Quigley: The GENIUS Act has been a long-awaited and essential step for the tokenization of the global financial system, particularly focusing on stablecoin issuance for USD transactions that could enhance the USD’s global standing. It mainly centers on regulating the issuance and management of stablecoins, irrespective of whether they utilize blockchain technology. The Act lays down a framework for the responsible operation of stablecoins but does not explicitly require blockchain for their creation or usage. It recognizes that numerous stablecoins are already based on blockchain technology. For instance, Tether (USDT), the most widely used stablecoin, was first introduced in 2014 as “Realcoin” on the Bitcoin blockchain via the Omni Layer Protocol and has since expanded to operate on various other blockchains, such as Ethereum, Tron, Solana, Avalanche, Algorand, and Polygon. This multi-chain presence allows USDT transactions to be documented on a public, distributed ledger, promoting transparency and potentially speeding up transaction processes.
By not necessitating the use of blockchain, the GENIUS Act essentially permits financial institutions to utilize their existing digital payment frameworks while labeling them as “stablecoin” systems, without the requirement of blockchain. This could allow them to impose higher fees on customers for payment transfers without the transactions being recorded on a transparent ledger. The optimistic news is that after over a decade since the launch of USDT, a coalition of significant U.S. financial institutions is now actively considering and possibly developing a collaborative stablecoin initiative, driven by competition from established stablecoin players like Tether and the need for more efficient payment solutions.
Progress towards the tokenization of the global financial market has been impeded in part due to historical views held by top executives of major U.S. financial institutions, who often associated Bitcoin and its underlying blockchain technology with illicit activities such as money laundering. For example, in 2018, Larry Fink, CEO of BlackRock, the world’s largest asset management firm, characterized Bitcoin as an indicator of global money laundering demand. This sentiment mirrored that of an IRS Criminal Investigation Division official who linked digital assets to money laundering in 2013. Fortunately, there seems to be a growing understanding of blockchain technology across various financial institutions worldwide.
Impact of the GENIUS Act on Tokenization
SO: The GENIUS Act sets forth regulations for reserve requirements and redemption processes and prohibits USD stablecoin issuers from providing interest or yields, which blockchain technology could facilitate. How might this affect the tokenization of global financial markets?
WQ: The GENIUS Act prioritizes transparency and the auditability of reserves, which could be enhanced with blockchain technology, although it does not enforce its use. Additionally, the prohibition on paying interest or yields on regulated stablecoins means that holders will not earn returns just for holding them. Essentially, the Act treats USD stablecoins as payment instruments rather than investment vehicles. Consequently, this may not accelerate the tokenization of global financial markets as swiftly as one might hope, since blockchain technology could revolutionize not just cross-border payments but also ownership of various assets recorded on blockchains, including commercial bank deposits, government and corporate bonds, and other financial instruments.
Tether’s Future Amid the GENIUS Act
SO: What implications does the GENIUS Act have for Tether, a foreign issuer of the USDT stablecoin?
WQ: Historically, Tether has been registered in the British Virgin Islands and Hong Kong, with its parent company, Tether Holdings Limited, incorporated in the British Virgin Islands. Earlier this year, Tether established a physical headquarters in El Salvador, where it operates as a licensed Digital Asset Service Provider (DASP). El Salvador has its digital asset legislation, known as the Digital Assets Issuance Law (LEAD), which addresses stablecoins within a broader regulatory framework and offers tax incentives for digital asset development, which may benefit stablecoin issuance and transactions.
As a foreign stablecoin issuer based in El Salvador, Tether can now legally offer USDT in the U.S. market by adhering to the GENIUS Act’s foreign issuer stipulations. This legislation allows foreign stablecoin issuers to operate in the U.S. under specific conditions, including maintaining a regulatory framework comparable to that of the U.S., registering with the OCC, and ensuring adequate reserves in U.S. financial institutions to meet customer redemption requests. The issuer’s home country must not face U.S. sanctions or be labeled a primary money laundering threat, and it must possess the technological capabilities to comply with the Act. El Salvador, not under broad U.S. sanctions, has also made strides in enhancing its anti-money laundering and counter-terrorism financing (AML/CFT) framework. Failure to comply with the Act can result in severe penalties, including substantial fines and potential imprisonment, along with the authority for regulators to ban non-compliant stablecoins and impose daily fines for breaches.
Corporate Finance and Blockchain Adoption
SO: How do you view the GENIUS Act’s potential to encourage blockchain adoption within Corporate Finance Divisions of businesses?
WQ: I believe many large multinationals, especially those focused on consumer technology, will establish digital asset treasury divisions and issue stablecoins due to the GENIUS Act. This could foster broader acceptance of stablecoins and indirectly promote the use of blockchains that facilitate stablecoin issuance. However, I would like to reference Facebook’s (now Meta’s) Libra project, later renamed Diem, which aimed to introduce a stablecoin for global transactions and financial inclusion back in 2018. Meta’s founder, Mark Zuckerberg, promoted the Diem stablecoin project, which included notable members such as Shopify and Uber, as a means of empowering the unbanked and asserting U.S. leadership in financial innovation. Yet, the initiative encountered significant regulatory challenges and concerns regarding its implications for monetary sovereignty and financial stability, ultimately leading Meta to abandon the project and sell its assets to Silvergate Bank in early 2022. Silvergate Bank, which catered to the digital asset sector, was shut down in March 2023 after facing significant turmoil and a loss of customer deposits, largely due to the collapse of FTX, as discussed in Part One of our interview series.
Although the Diem project itself did not materialize, it did prompt legislative responses, culminating in the enactment of the GENIUS Act and growing institutional acknowledgment of digital assets. Meta is reportedly considering the implementation of stablecoins for creator payments across its social media platforms, which have a collective user base of nearly half the world’s population. Nevertheless, fostering innovation in large corporations can be challenging. Despite having substantial resources and talent, such organizations often struggle to nurture innovative practices among their employees. It is vital for major companies like Meta to overcome these challenges to remain competitive and responsive in a fast-paced digital asset and AI-driven economy, leveraging the GENIUS Act to provide stablecoins to Meta’s nearly four billion creative users.
Tax Implications for Stablecoin Payments
SO: Payments made using stablecoins may be subject to various taxes, such as federal, state, sales tax, and value-added tax (VAT), depending on their usage and tax jurisdiction. Do you think these tax implications could discourage the use of stablecoins for international payments?
WQ: In the U.S., stablecoins are generally subject to federal taxation whenever they are traded, converted, or treated as income, despite their stable values. The IRS categorizes them as property rather than currency, meaning that transactions involving stablecoins may trigger federal and state tax obligations, even with minimal price fluctuations. Therefore, using stablecoins for payments necessitates tracking and reporting to the IRS and state tax authorities. In cross-border scenarios, users of stablecoins should be aware of tax treaties and that stablecoins are often not regarded as legal tender for VAT purposes in many regions, including the UK. While stablecoins themselves may not incur sales tax, the goods or services purchased with them could be liable for sales tax or VAT, depending on the jurisdiction. This distinction has crucial implications for VAT applications. For instance, if a stablecoin is used to buy a memecoin classified as a service in an EU nation, VAT would typically be assessed on the value of the goods or services rather than the stablecoins themselves. VAT regulations can differ significantly between countries, even within the EU. Thus, users of stablecoins must familiarize themselves with the specific tax and regulatory frameworks in each operational jurisdiction and carefully monitor the costs and taxes related to such payment transactions.
Evolving Regulatory Landscape for Digital Assets
SO: The regulatory environment for digital assets is continually changing. There is a proposed U.S. bill, known as The Digital Asset Market Clarity Act of 2025 or the CLARITY Act, which aims to clarify the regulation of digital assets, a topic we discussed in Part Three of your interview series in 2024. May I reach out to you for your insights if and when this legislation is enacted?
WQ: Feel free to reach out, Selva.
