Tether's dual stablecoin strategy: A new chapter in competition and regulation.

Written by: Thejaswini M A

Compiled by: Block unicorn

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Preface

In August of this year, Bo Hines resigned from his position as a member of the White House Cryptocurrency Council and quickly took up the role of CEO of Tether's newly established U.S. division. His mission is to launch USAT, a stablecoin that complies with the GENIUS Act. USAT will undergo monthly audits, with its reserves held entirely in cash and short-term U.S. Treasury bills, operating under the full supervision of federal banks.

Meanwhile, USDT continues to handle over $1 trillion in transactions every month, with reserves that include Bitcoin, gold, and secured loans. These assets are managed through offshore entities that have never undergone comprehensive audits.

The same company, two completely different product approaches.

Tether made a profit of 13.7 billion dollars last year through its model of “seeking forgiveness rather than permission.” In contrast, Circle went public with a valuation of 7 billion dollars by conducting due diligence and asking the right questions before advancing its business.

This announcement should have been a celebration.

After years of regulatory struggles, transparency issues, and ongoing doubts about reserve support, Tether has finally provided what critics have long demanded for the U.S. market: fully compliant, independently audited, regulated custodians, and reserves that only hold cash and short-term U.S. Treasury securities.

However, we find ourselves discussing regulatory arbitrage, competitive moats, and those delightful awkward moments that arise when revolutionary technologies clash with the established order, while everyone pretends that this has always been part of the plan.

It turns out that as long as there is enough creativity in the corporate structure, it can serve two masters at the same time.

Before diving into USAT, let's first take a look at the tremendous achievements that Tether has made with USDT. The circulating token value of USDT reaches up to 172 billion dollars, processing over 1 trillion dollars in transactions monthly in the cryptocurrency market. If Tether were a country, it would be the 18th largest holder of U.S. government debt, having accumulated 127 billion dollars in government bonds.

The company made a profit of 13.7 billion dollars last year—not revenue, but profit—placing it among the most profitable companies, surpassing many in the Fortune 500.

None of these achievements have undergone comprehensive audits, comprehensive regulations, or the transparency that traditional financial institutions take for granted. Instead, Tether relies on quarterly “proofs” rather than comprehensive audits, and includes assets such as gold, Bitcoin, and collateralized loans in its reserves—assets that are not permitted under strict stablecoin regulations. Furthermore, it primarily operates through offshore entities in Hong Kong and the British Virgin Islands.

This can be considered an ultimate example, illustrating that sometimes it is still possible to achieve great success by completely going against the preferences of regulators.

The emergence (and issues) of the “GENIUS Act”

Then, in July 2025, the “GENIUS Act” was introduced, which is the first comprehensive stablecoin regulatory framework in the United States. Suddenly, the U.S. market— the most profitable and influential cryptocurrency market in the world—had new strict rules:

100% reserves in cash and short-term U.S. Treasury bonds (excluding Bitcoin, gold, or secured loans)

Monthly independent audit, the CEO and CFO need to provide certification.

Issuers with a U.S. license, and custodians regulated by the U.S.

Fully comply with Anti-Money Laundering (AML) / Know Your Customer (KYC) requirements, equipped with freeze functionality.

No interest paid to holders.

The composition of reserves is completely transparent.

Look at this list, and then look at the existing structure of USDT; the challenges are obvious. This law actually delineates a clear line between “foreign” stablecoins and those based in the United States. USDT issued by Tether entities in the British Virgin Islands and Hong Kong cannot simply become compliant with the flip of a switch. It requires a thorough overhaul of its corporate structure, reserve composition, and operational framework.

For Tether, the more challenging aspect is the kind of transparency that the company has consistently avoided in order to truly comply with the GENIUS Act. As of 2025, Tether still provides quarterly “proofs” instead of a full audit. About 16% of its reserves consist of assets explicitly prohibited by the GENIUS Act: gold (3.5%), Bitcoin (5.4%), secured loans, and corporate bonds.

Then why not directly fix USDT?

Why launch a brand new token instead of simply making USDT compliant?

In simple terms, transforming USDT into a compliant asset is like trying to convert a speedboat into an aircraft carrier while it is still sailing. USDT currently serves 500 million users worldwide, who choose it because it is not subject to strict regulations in the United States. Many of these users are in emerging markets, where local banking systems are unreliable or costly, and USDT provides them with a channel to access US dollars.

If Tether suddenly imposes U.S.-level KYC requirements, freezing functionalities, and audit protocols on all USDT users globally, it would fundamentally change the nature of USDT's success. A Brazilian small business owner using USDT to evade currency fluctuations does not want to deal with U.S. regulatory compliance requirements, and a cryptocurrency trader in Southeast Asia does not need monthly certifications issued by the CEO.

But there is a deeper strategic reason behind it: market segmentation. By creating USAT, Tether can offer a “premium” regulated product for U.S. institutions while keeping USDT as a “global standard” aimed at other markets. It's like having both a luxury brand and a mass-market brand—one company providing different products for different customers.

The value proposition of USAT (as it is itself)

So what features does USAT offer that USDC has not provided? Tether's marketing seems a bit vague in this regard.

The technical architecture supports this dual-track strategy. Both tokens utilize Tether's Hadron platform, allowing for seamless integration with existing infrastructure while maintaining regulatory separation. Where legally permissible, liquidity can flow between the two systems, but compliance “firewalls” ensure that each token operates independently within its jurisdiction.

USAT will be issued by Anchorage Digital Bank (a federally chartered crypto bank), with reserves held by Cantor Fitzgerald. It will fully comply with the GENIUS Act, including monthly audits, transparent reserves, and various regulatory requirements expected by institutional users. Under the leadership of former White House crypto advisor Bo Hines, USAT benefits from strong political support and a network of connections in Washington.

However, Circle's USDC has long met all these criteria. USDC has deep liquidity, mature exchange integrations, institutional partnerships, and a good regulatory track record. It has become the stablecoin of choice for U.S. institutions.

The main advantage of Tether is… well, it’s Tether. The company has built the largest stablecoin distribution network in the world, has a huge existing market share, and generates $13.7 billion in profits each year to support its growth. As CEO Paolo Ardoino said, “Unlike our competitors, we don't need to rent distribution channels; we own them.”

Tether needs to build liquidity for USAT from scratch. This means persuading exchanges to list USAT, getting market makers to provide liquidity, and having institutional clients actually use it. Even with Tether's strong financial backing and large distribution network, this is not an easy task.

USDC controls about 25% of the global stablecoin market but dominates the regulated U.S. market. USDT has a 58% market share globally but is essentially excluded from the compliant U.S. market.

The company bets that institutional users need alternatives to mitigate concentration risks. If Circle or USDC encounters issues, institutional users may seek other fully regulated options. Moreover, Tether can leverage its existing relationships (such as its partnership with Cantor Fitzgerald) to offer better terms or services.

Circle's recent actions highlight the intensity of competition. In June 2025, Circle successfully went public and launched the blockchain Arc, specifically designed for stablecoin finance, while continuing to expand global payment channels. Circle's regulatory-first strategy has clearly paid off in terms of institutional adoption.

But USAT also has certain advantages that USDC lacks. According to CEO Paolo Ardoino, Tether's global distribution network includes “hundreds of thousands of physical distribution points,” as well as digital partnerships like the $775 million investment in Rumble. This infrastructure has been built over more than a decade and is difficult to replicate easily.

Tether's strength lies in its global relationships and financial power. In the first half of 2025, the company generated $5.7 billion in profits, providing ample resources for market creation, liquidity incentives, and partnership development. Unlike competitors who must “rent” distribution channels, Tether owns its own infrastructure.

The biggest advantage of USAT may be its compatibility. If it can work in conjunction with the existing USDT infrastructure, users will not need to completely overhaul their systems. For developers who have already spent months integrating USDT, switching to another Tether token is much better than starting from scratch with a completely different provider.

Some institutions or risk-averse users may simply wish to hold a variety of regulated stablecoins for diversification, reducing counterparty risk between Circle (USDC) and Tether (USDT).

The timeline is crucial here. USAT plans to launch by the end of 2025, which means that Tether has a limited time to build liquidity, secure exchange listings, and establish relationships with market makers. In financial markets, first-mover advantage can be decisive, and users typically tend to choose established and highly liquid options over newcomers.

The timeline here is crucial. USAT is planned to launch by the end of 2025, which gives Tether limited time, making it difficult to establish liquidity, ensure exchange listings, and build market maker relationships. In financial markets, first-mover advantage is essential—users tend to prefer established and liquid options rather than newcomers.

Critics argue that USAT is essentially a “compliance performance”—a way for Tether to enter the U.S. market, but it does not address the transparency and operational issues of its core business.

This criticism has some merit. Tether's choice to launch USAT instead of making USDT fully compliant indicates that the company values current operational flexibility over comprehensive regulatory legitimacy.

On the other hand, some may argue that this is exactly how the market should operate. Different customer groups have different needs and risk appetites. U.S. institutions require regulatory compliance and transparency, while users in emerging markets prioritize accessibility and low fees. Why can't a company cater to both segments simultaneously with different products?

Conclusion

Tether's dual stablecoin strategy reflects a broader contradiction in the crypto industry regarding regulation, decentralization, and institutional adoption. The industry is increasingly facing the challenge of how to balance the original permissionless spirit of cryptocurrency with the regulatory framework demands that promote mainstream adoption.

USAT represents Tether's bet: they can obtain regulatory legitimacy for institutional users while maintaining flexibility for global retail investors. The success of this strategy will depend on execution, market acceptance, and the stability of the ever-changing regulatory framework.

The regulatory environment is still constantly changing. Although the GENIUS Act provides some clarity, the specific details of its implementation and enforcement remain uncertain. Changes in administrative agencies or shifts in regulatory priorities could significantly impact the strategies of stablecoin issuers.

More fundamentally, USAT raised key questions about the essential nature of Tether's initial success. The dominance of USDT is built on regulatory arbitrage, which may no longer be sustainable? Or does it reflect a true innovation in global financial infrastructure, where regulatory compliance can promote rather than hinder such innovation?

The answer to this question may ultimately determine whether USAT is an evolution of Tether towards mature financial institutions or an acknowledgment of the fundamental limitations of its original model. In any case, the launch of USAT marks a new chapter in the competition and regulation of stablecoins.

The king is establishing a second kingdom. Whether he can rule both at the same time remains to be seen.