TL;DR

The STABLE Act is a proposed U.S. legislation to regulate stablecoins, requiring issuers to obtain banking charters and maintain full reserves.
The STABLE Act could pose threats to USDT by imposing strict compliance requirements and increasing scrutiny of its reserves.
The U.S. is promoting stablecoins to enhance financial inclusion, efficiency, innovation, and maintain the USD's global dominance.
In the post-STABLE Act era, USD-pegged stablecoins will likely continue to grow, supporting the USD's dominance despite countries dumping U.S. treasuries.

Introduction

Stablecoins have emerged as a cornerstone of the cryptocurrency ecosystem, providing a stable medium of exchange amidst the volatility of digital assets like Bitcoin and Ethereum. By pegging their value to a stable asset, typically the U.S. dollar, stablecoins offer users the benefits of blockchain technology, without the price swings that deter mainstream adoption. However, as their popularity grows, so does the need for regulation to ensure their stability, protect consumers, and mitigate potential risks to the broader financial system.

In response to these concerns, the U.S. has initially proposed the STABLE Act on March 26, 2025, a legislative framework designed to regulate stablecoins. This act could reshape the stablecoin landscape, particularly for major players like USDT (Tether), while also reinforcing the U.S. dollar's dominance in the global financial system. This article explores the STABLE Act in detail, its potential impact on USDT, the strategic reasons behind the U.S.'s promotion of stablecoins, and what the future might hold in a post-STABLE Act world.

Understanding the STABLE Act

What Are Stablecoins?

Stablecoins are a type of cryptocurrency designed to maintain a stable value by pegging them to a reserve asset, most commonly the U.S. dollar. Unlike volatile cryptocurrencies such as Bitcoin, stablecoins provide a reliable store of value, making them essential for trading, lending, and other financial activities within the crypto ecosystem. They act as a bridge between traditional finance and the digital economy, enabling users to move seamlessly between fiat currencies and cryptocurrencies.

The STABLE Act: A New Regulatory Framework

The STABLE Act, formally known as the "Stablecoin Tethering and Bank Licensing Enforcement Act," is a proposed U.S. legislation aimed at regulating stablecoins (R-WI-1, 2025). Introduced to address growing concerns about the potential risks stablecoins pose to the financial system—such as money laundering, fraud, and systemic risk—the act seeks to bring stablecoin issuers under the same regulatory framework as traditional banks.

Key Highlights of the STABLE Act

1. Licensing Requirements:

Under the STABLE Act, stablecoin issuers would be required to obtain a banking charter. This means they would be subject to the same regulations as traditional banks, including compliance with capital requirements, liquidity standards, and regular audits. This is a significant shift from the current landscape, where many stablecoin issuers operate with minimal regulatory oversight.

2. Reserve Requirements:

The act mandates that stablecoin issuers maintain reserves equal to the value of the stablecoins in circulation. These reserves must be held in U.S. dollars or other approved assets, ensuring that each stablecoin is fully backed and can be redeemed at any time.

3. Consumer Protection:

The STABLE Act aims to protect consumers by requiring stablecoin issuers to be transparent about their operations. This includes disclosing their reserve holdings and implementing measures to prevent fraud and ensure the redemption of stablecoins for their underlying assets.

4. Regulatory Oversight:

By bringing stablecoin issuers under the purview of federal regulators such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC), the act ensures that they adhere to strict regulatory standards. This oversight is intended to mitigate the risks associated with stablecoins and promote stability in the financial system.

5. Impact on Existing Stablecoins:

Existing stablecoins, such as USDT, would need to comply with the new regulations or face potential legal action. This could lead to significant changes in their operations or even their discontinuation if they fail to meet the requirements.

The STABLE Act represents a pivotal moment in the regulation of stablecoins, aiming to balance innovation with consumer protection and financial stability. Its passage would mark a significant step toward integrating stablecoins into the formal financial system, potentially setting a global standard for how digital currencies are regulated.

Will the STABLE Act Poses Threats to USDT?

The Dominance of USDT

USDT, or Tether, is one of the most widely used stablecoins, with a market capitalization exceeding $60 billion. Pegged to the U.S. dollar, it is a staple in crypto trading, providing liquidity and stability across various platforms. However, despite its popularity, USDT has faced ongoing scrutiny over its reserve backing and regulatory compliance.

Potential Threats to USDT

Stricter reserve requirements:

The STABLE Act’s requirement for 1:1 reserves backed by high-quality, liquid assets, such as U.S. Treasury bills, poses a significant challenge for Tether. Currently, only 66% of Tether’s reserves meet these standards, with the remainder in non-compliant assets like precious metals, Bitcoin, corporate paper, and secured loans, according to JPMorgan. To comply, Tether would need to liquidate these assets and acquire compliant ones, which could incur substantial costs or market disruptions, especially in volatile conditions, potentially straining its financial position.

Increased transparency and audits:

Increased transparency and rigorous audit requirements under the STABLE Act could further threaten USDT’s market standing. Tether has long faced criticism for relying on attestations rather than full financial audits, raising doubts about its reserve backing. Meeting the Act’s demand for frequent, thorough audits might reveal discrepancies or operational weaknesses, which could erode user trust and trigger outflows to more transparent competitors like USDC, particularly if Tether struggles to align with these standards quickly.

Licensing and operational oversight:

The Act’s licensing and operational oversight rules present another hurdle, as Tether’s offshore base in Hong Kong and El Salvador complicates obtaining a U.S. banking license. Past legal issues could hinder regulatory approval. Failure to secure a license risks USDT being delisted from U.S. exchanges or barred from serving U.S. customers, which would shrink its market share and liquidity in a key financial hub.

Market cap limits for non-banks:

The Payment Stablecoin Act’s $10 billion market cap limit for non-bank issuers, a precursor to the STABLE Act, directly targets Tether’s $144 billion market cap (Transparency, n.d.). As a non-bank issuer, Tether far exceeds this threshold, forcing it to either obtain a banking license or restructure its operations significantly. Non-compliance could exclude USDT from the U.S. market, amplifying competitive pressures from regulated issuers and potentially destabilizing its global dominance.

Could USDT Adapt?

Despite these threats, it's possible that USDT could adapt to the new regulatory environment. For example, Tether could counter the STABLE Act’s threats by launching a U.S.-domiciled stablecoin designed to meet American regulatory standards, as suggested by CEO Paolo Ardoino. This approach would allow Tether to maintain a U.S. presence without overhauling USDT’s existing structure, which caters to emerging markets. While this strategy requires navigating regulatory approvals and significant investment, it could preserve Tether’s market share in the U.S. and demonstrate adaptability to stringent rules.

Proactive compliance efforts could further soften the Act’s impact. Over the past three years, Tether has voluntarily assisted with freezing illicit USDT in over 900 law enforcement requests. To date, Tether has frozen over $2.5 billion in USDT tied to illicit activities, reinforcing its dedication to anti-money laundering efforts. These steps signal a commitment to meeting regulatory demands, potentially aligning USDT with the STABLE Act’s audit and oversight requirements. Success here could bolster user confidence and position Tether as a more credible player, though overcoming its historical transparency issues remains critical.

Tether’s resilience through past scrutiny, including fines and reserve controversies, suggests it may weather the STABLE Act’s challenges. Despite setbacks, USDT’s market cap grew by about $29 billion last year, reflecting robust demand. This track record indicates Tether could adapt through strategic pivots or compliance improvements, though the Act’s scale and U.S. regulatory weight present a tougher test than previous obstacles.

Why the U.S. Is Increasingly Promoting Stablecoins

The U.S. encouragement of new stablecoins, as reflected in legislation like the STABLE Act and related regulatory frameworks, stems from a combination of economic, regulatory, and geopolitical objectives:

1. Financial Inclusion:

Stablecoins can provide access to financial services for unbanked and underbanked populations, both within the U.S. and globally. By offering a stable digital currency, stablecoins can facilitate transactions, savings, and investments for those who lack access to traditional banking systems.

2. Efficiency:

Stablecoins enable faster and cheaper transactions compared to traditional banking systems. This efficiency can boost economic activity by reducing transaction costs and settlement times, particularly for cross-border payments.

3. Innovation:

By fostering a regulatory environment for stablecoins, the U.S. can encourage innovation in the fintech sector. This could lead to the development of new business models, financial products, and services, driving economic growth and maintaining the U.S.'s competitive edge in technology.

4. Global Dominance:

Stablecoins pegged to the U.S. dollar can help maintain the dollar's status as the world's reserve currency. As digital currencies gain prominence, USD-pegged stablecoins ensure that the dollar remains central to global trade and finance, even in the digital realm.

5. Geopolitical Strategy:

By leading in the regulation and adoption of stablecoins, the U.S. can influence the global financial system. This is particularly important as other countries, such as China, develop their own digital currencies. Promoting stablecoins allows the U.S. to counteract these efforts and maintain its financial hegemony.

The promotion of stablecoins aligns with the U.S.'s broader economic and geopolitical goals, positioning it as a leader in the evolving digital economy.

The Assumed Scenario in the Post-STABLE Act Era

The Continued Dominance of USD-Pegged Stablecoins

In the post-STABLE Act era, USD-pegged stablecoins are poised to play an increasingly significant role in the global financial system. As the cryptocurrency industry continues to grow, the demand for stablecoins will likely increase, further solidifying the USD's dominance.

Even as some countries reduce their holdings of U.S. treasuries, the widespread use of USD-pegged stablecoins in crypto trading will ensure that the dollar remains a key currency in the digital economy. Stablecoins act as a bridge between traditional finance and the crypto world, facilitating seamless transactions and providing liquidity.

Moreover, the STABLE Act could enhance trust and adoption of stablecoins by ensuring they are fully backed and regulated. This increased legitimacy could attract institutional investors and mainstream users, driving further growth in the crypto market.

In this scenario, stablecoins will not only support the USD's dominance but also contribute to the broader adoption of digital currencies, shaping the future of finance.

Conclusion

The STABLE Act represents a significant step toward regulating stablecoins in the United States, aiming to balance innovation with consumer protection and financial stability. While it poses potential threats to existing stablecoins like USDT, it also offers opportunities for growth and legitimacy in the industry.

The U.S.'s promotion of stablecoins is driven by strategic economic and geopolitical goals, including financial inclusion, efficiency, innovation, and maintaining the USD's global dominance. In the post-STABLE Act era, USD-pegged stablecoins are likely to continue thriving, supporting the USD's position even as the global financial landscape evolves.

As the crypto industry matures, stablecoins will play a crucial role in shaping the future of finance, and the STABLE Act is a key milestone in this journey.

References

R-WI-1, B. (2025). Text - H.R.2392 - 119th Congress (2025-2026): STABLE Act of 2025. Congress.gov. https://www.congress.gov/bill/119th-congress/house-bill/2392/text
Transparency. (n.d.). Tether.to. https://tether.to/en/transparency/?tab=usdt

New Stablecoins Framework Proposed by the STABLE Act: A New Move Towards US Dollar Dominance