Reed Statement on the So-Called "GENIUS Act" (S.1582)
Mr. President, I rise today to discuss S. 1582, the GENIUS Act.
I believe that this legislation, as it is currently drafted, is fundamentally flawed. It exposes taxpayers, consumers, and the financial system to unacceptable risk. And it creates venues for criminals, terrorists, and rogue governments to finance their illicit activities. Despite these dangerous flaws, we won’t have the chance to offer a single substantive amendment.
The legislation before us places the government stamp of approval on so-called “stablecoins,” which are crypto dollars that could be minted by anyone. . . . Amazon, WalMart, Facebook, X, the Trump family, and even foreign companies. It gives stablecoin issuers an enormous privilege—a U.S. government license to create dollars—without demanding much of anything in return.
Here’s how the business works. You give a stablecoin company a dollar, the company gives you back an IOU that is recorded on a blockchain. The stablecoin company takes your dollar and invests it in various assets that generate interest and yield. The company keeps the interest and yield. It is supposed to give you back your dollar when you ask. You can take the IOU and transfer it to other people. You can use it to buy things, mostly other crypto.
If this sounds similar to a bank, that’s because it is. Banks allow customers to send and receive money. Stablecoins allow customers to do the same thing—just outside the banking system and purportedly in faster and cheaper way. Competition can force banks to do a better job . . . and it should be more convenient for consumers to transfer funds.
However, I believe that competition should come from merits of the product and the underlying technology—not from regulatory arbitrage as provided in the GENIUS Act.
The light-touch regulatory regime in this bill is premised on two faulty assumptions: First, it assumes customer funds are safe because they are fully reserved with one-to-one backing of all customer liabilities. And second, it assumes that stablecoin issuers are inherently risk-free because they engage in only one activity -- issuing stablecoins.
Experience tells us that these kinds of assumptions are flawed. During the 2008 financial crisis, we saw institutions with these exact characteristics fail and get billions in taxpayer bailouts.
We were assured that money market funds were low risk because they were fully reserved with shares pegged to a dollar.
We were assured that derivatives were innovative tools that didn’t need heavy-handed regulation.
And we were assured that Fannie and Freddie were safe because they engaged in one simple business.
However, taxpayers needed to backstop $2 trillion in money market fund liabilities; the government gave AIG a $200 billion bailout; and taxpayers still stand behind $8 trillion in Fannie and Freddie liabilities.
Now, Mr. President, I do not believe it is appropriate to apply the full spectrum of bank regulation to stablecoins. But many more elements of the banking laws and the money transmission laws must be imported into this bill in order to make it work.
There are dozens of sensible and basic rules that apply to similar firms that handle people’s money. The GENIUS bill says that stablecoin companies no longer need to comply with many of these consumer protection laws. Instead, they can comply with a Federal framework containing very few of them.
Let me highlight a few specifics that I think the public should be aware of.
First, stablecoin companies could operate with near-zero capital. The bill says that the capital requirements “shall not exceed what is sufficient to maintain the ongoing operations of the issuer.” This establishes a ceiling, not a floor.
This repeats the mistakes of the 1990s and 2000s, when nonbank financial institutions like Lehman Brothers operated with paltry 3% capital ratios. When the firm got into trouble, there was no cushion to bear losses… customers and taxpayers had to step in.
And strong capital is critical. Indeed, in March 2023, when Silicon Valley Bank failed, taxpayers bailed out the uninsured deposits of a stablecoin company to the tune of $3.3 billion.
Second, the audit requirement is calibrated so narrowly that it does not cover a single existing stablecoin company. Not one. Independent audits make it harder for companies to cook the books or dip into customer funds. I can’t imagine why we wouldn’t require them for stablecoin companies holding vast amounts of cash and securities.
Third, there are no merger or change-in-control rules. These rules could prohibit felons convicted of financial crimes and fraud from acquiring a stablecoin issuer.
Fourth, the enforcement provisions are dangerously weak. The government will need to wait until wrongdoing has already occurred before it can act. It would be powerless to intervene early to prevent people from getting harmed in the first place. And even then, there is no power for regulators to revoke a company’s charter. If one of these companies brazenly mishandles customer funds, the regulators will not have adequate tools to stop them.
Fifth, when a stablecoin company fails, it must go through ordinary bankruptcy. That is a mistake. We’ve seen other crypto firms . . . like FTX and Celsius … go bankrupt recently. Customers have been waiting many months, and in some cases years, to get their money back. Instead, we should set up a bank-like resolution regime guaranteeing that customers immediately get their money back up to a sensible limit. And the industry should pay for it.
Sixth, regulators have no express authority to issue new rules to address emerging threats as they arise. Without the ability to issue updated rules, the GENIUS Act will become outdated very quickly as stablecoins scale and become embedded in the economy.
Together, these flaws make the GENIUS bill worse than the status quo.
That brings me to the biggest problem in this legislation: national security.
GENIUS allows foreign-based stablecoin companies to operate freely in the United States.
Today, the world’s largest stablecoin—in other words, the world’s largest crypto dollar—is issued not in the United States, but in El Salvador.
This stablecoin is called “Tether,” and it is the biggest beneficiary of this bill.
Let me tell you about Tether.
Tether was fined by U.S. regulators in 2021 for misleading customers into thinking that their funds were fully backed. Despite this misconduct, Tether has never undergone an audit and this bill would not require one.
Tether is used by North Korea. According to FBI indictments in 2023, North Korean IT workers have “obtained illegal employment in the tech and crypto industry and then asked to be paid in stablecoins like Tether. . . . After receiving payment, they funneled their earnings back to North Korea.” According to government reports, North Korea has used at least $5 billion of stolen crypto to fund its WMD programs. This comprises between 40-50% of its budget for these programs.
Tether is also used by terrorists. According to the Treasury Department’s 2024 National Terrorist Financing Risk Assessment, “ISIS and other terrorist groups have moved towards using stablecoins, including Tether, to move or store funds.” In October 2023, the Senator from Wyoming asked then-Attorney General Garland to open a criminal investigation into Tether because it has “facilitated significant illicit finance activity . . . including significant terrorism financing for Hamas’ malevolent attack on Israel.”
Tether is used by Russian arms dealers. According to testimony before the Banking Committee by the Deputy Treasury Secretary in 2024, “we’ve seen Russia increasingly turning to alternative payment mechanisms—including the stablecoin tether—to try to circumvent our sanctions and continue to finance its war machine” in Ukraine.
Tether is also used for human trafficking, scams, and fraud. According to a report published by the United Nations in 2024, Tether “has become a preferred choice for [Southeast Asian] cyber-fraud operations and money launderers alike due to its stability and the ease, anonymity, and low fees of its transactions.” During a single year—from the middle of 2022 through the middle of 2023—a blockchain analysis company uncovered “$17 billion of Tether transactions connected to . . . various criminal activities,” including human trafficking and romance scams.
And the list goes on. Iranian diplomats. Venezuelan oil companies. Drug traffickers. Ransomware attackers. All are drawn to Tether.
Under the GENIUS bill, Tether could be offered and sold in the United States without being required to meet any U.S. anti-money laundering or sanctions compliance requirements. Tether would just need to demonstrate the ability to freeze its coins if they fall into the wrong hands—a technological capability that Tether already has and that it refuses to use to stop illicit activity.
Tether would not be subject to full-blown licensure and supervision. Tether would instead need to meet home-country requirements—in El Salvador—that are “comparable” to U.S. requirements. But this term is ill-defined and may be materially weaker that the standards in the United States.
And these weak restrictions would not even kick in for three years after enactment. That means business-as-usual for Tether. It means more WMD proliferation, more Iranian oil sales, more Russian arms deals, more tax evasion, more black-market drug sales, and more human trafficking.
Further, if Tether chooses not meet these bare requirements then it could not be offered or sold on centralized trading venues in the United States.
But there is a huge exemption allowing Tethers to offer its stablecoin in the U.S. through decentralized trading venues, also known as “DeFi” (DEE-fie). DeFi platforms are exactly where North Korea trades crypto and where the bulk of illicit activity occurs.
According to the Treasury Department, North Korea laundered at least $455 million in stolen crypto on just one DeFi platform called Tornado Cash as of 2022. Last year, North Korea laundered at least $147 million through the same platform.
If these trades occurred with real dollars in real banks, the government would have tools to stop them. But because these trades occur using foreign-issued crypto dollars outside the banking system, the government lacks these tools.
As we place the U.S. government stamp of approval on Tether, I think it is entirely sensible to be providing Treasury with new authorities to address how Tether is used for illegal purposes around the world.
We should also be looking at the stronger approach taken in Europe, where Tether may not be offered or sold—full stop—unless it is fully licensed and meets all EU laws.
If someone is in the business of creating dollars in any form, they should be subject to full U.S. jurisdiction. If someone creates a platform that is used by North Korea to launder stolen dollar alternatives, they should be within reach of U.S. sanctions laws.
I hope Democrats and Republicans can at least agree on that. But this bill does not respect these commonsense principles.
Last Congress, the Department of the Treasury sent up a legislative package with new authorities to crack down on Tether. The Deputy Secretary testified before the Banking Committee about that package. I worked across the aisle with Senators Warner, Rounds, and Romney on legislation to implement some of them. Unfortunately, we could not get it enacted.
This bill contains none of those provisions. I have filed an amendment to provide these tools to Treasury, but regrettably, we will not have an opportunity to vote on it.
Mr. President, there is another fatal flaw in the bill in terms of normalizing corruption and undermining the dollar.
Trump’s Commerce Secretary Howard Lutnick has millions of dollars in financial interests tied to Tether. The investment bank Cantor Fitzgerald—that Mr. Lutnick ran and owned—manages Tether’s reserves and generates millions in fees. Cantor has provided Tether with working capital through a hybrid debt-equity investment. It has been reported that Cantor owns 5% of Tether, a stake worth millions of dollars. Cantor and Tether have just announced a new Bitcoin fund for retail investors.
Mr. Lutnick says he has divested from Cantor . . . but what he has really done is turn ownership and control over to his adult children, who are in their 20s. I invite the American people to judge for themselves whether Mr. Lutnick no longer has any financial exposure or business ties with Tether.
And just a few months ago, the Trump family began issuing a stablecoin called “USD1.” This token has already been used by a foreign government to funnel money to Trump. An Abu Dhabi sovereign wealth fund made a $2 billion investment in a crypto company called Binance (BUY-nance). Instead of using real dollars, they used USD1.
Rather than doing something about Trump’s corruption, the bill expressly affirms that he is able to call his stablecoin “USD1.” There is actually a provision greenlighting this name.
And the bill empowers Trump’s hand-picked regulators to write the rules that will govern his stablecoin business.
By authorizing money creation by shadowy offshore firms associated with Trump and his cronies, this bill undermines our economy’s most valuable asset—the U.S. dollar.
The dollar is the world’s reserve currency because the United States is a stable, predictable, and open society with strong rule of law that countries and businesses want to trade and partner with. I have not seen any convincing evidence that the availability of dollars in cryptographic form on a blockchain has anything to do with the dollar’s reserve status.
When the United States becomes less stable, less predictable, and less open . . . when politically connected people get special treatment . . . when Congress normalizes corruption by the President . . . all of that makes the dollar less attractive.
However, proponents claim this bill strengthens the dollar by stimulating demand for Treasury securities.
But that cannot be justified on the data. The entire stablecoin market is only .01% of the Treasury market.
According to an investor letter from the Elliott hedge fund—an outfit run by a major Republican donor—the dollar enjoys an “immense advantage” as the world’s reserve currency. If the U.S. government encourages adoption of crypto alternatives, that will “marginalize the dollar” and be “profoundly dangerous.”
Even if this legislation would modestly strengthen the dollar, it could not offset the erosion to the dollar that this Administration has engineered through sky-high tariffs on allies and a trade embargo on China.
And it could accelerate erosion of the dollar if one day stablecoins become “legal tender” that can be used to pay taxes. I offered an amendment in Committee to prohibit this, which was rejected by the Republicans.
Mr. President, we need to apply real guardrails that will protect consumers and provide real tools for our national security agencies to address this new technology. Real guardrails and real tools . . . not words on a page that give the false appearance of protection when things go wrong.
I urge my colleagues to oppose this fundamentally flawed bill.