#GENIUS ACT

Karen Petrou: Tether’s Tangled Web of High-Risk Assets

Shane Smith2025-12-08T09:08:04-05:00December 8th, 2025|The Vault|

Last week, the IMF said that stablecoins could prove a threat to financial stability if widespread adoption is followed by a sudden consumer-confidence shock. A little-noticed report makes it clear that any consumer with confidence in the largest USD-denominated stablecoin, Tether, is betting on fumes and policy-makers touting widespread adoption are playing with fire. As the IMF rightly says, stablecoins may well have valuable use cases, but radical reform is essential for innovation without immolation.

The Tether report comes from S&P, a rating agency with an unfortunate habit of pointing to problems only after they’ve become irreversible and irrefutable. Since its report on Tether was unsolicited, perhaps it’s more objective than many others and thus the early warning the agencies promise, giving markets a chance to retrench and regulators to rethink.

S&P’s report looks at the critical question of whether Tether can convert its dollar-denominated coins into dollars on demand. The GENIUS Act attempts to ensure this with what it hopes are stringent reserve-asset requirements. S&P makes it all too clear that the El Salvador-domiciled issuer has a long, long way to go before it can meet even these requirements.

Since its last rating, S&P has now downgraded Tether to “weak.” This is because the percentage of assets housed in higher-risk and/or volatile sectors actually increased. For example, bitcoin alone accounts for about 5.6 percent of Tether’s reserves, up substantially, with a mix of crypto and high-risk assets now accounting for 24 percent of Tether’s total reserves. Notably, none of …

Al051225

How Shaky is Stablecoin Legislation?

As we noted last week, Democrats were joined by two populist Republicans in blocking the procedural motion necessary to move the “GENIUS” Act to the Senate floor (see FSM Report CRYPTO48). The bill foundered on two policy differences and, beneath them, the politics evident in growing determination of even centrist, moderate, and crypto-friendly legislators to block or, if that’s not possible, at the least embarrass the President and friendly Republicans. For Members of Congress, the 2026 midterm election is already well under way, and the President’s stablecoin ventures are not the only stablecoin-related issue on which Democrats think they can put the GOP in a tight spot. Other considerations in the marathon drafting sessions ahead of the Senate floor debacle reflect key banking-industry concerns in areas such as master-account access, stablecoin return, and affiliate restraints. The independent bankers who spoke out on these issues as the Senate headed to a vote may not have the money wielded by crypto interest groups, but they have more votes, especially in rural states. What they want thus influences Congress at least as much as what giant bankers seek. When community and large banks are united – as they are on stablecoin legislation – this is a formidable concern for many Members, including senior GOP legislators.

Al051225.pdf…