- 6/17/2025
In remarks on the Senate floor Monday, Sen. Jack Reed (D-RI) spoke about the Genius Act.
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00:00Senator from Rhode Island.
00:02Mr. President, I rise today to discuss Senate Bill 1582, the Genius Act.
00:12I believe that this legislation, as it is currently drafted, is fundamentally flawed.
00:19It exposes taxpayers, consumers, and the financial system to unacceptable risk.
00:25And it creates venues for criminals, terrorists, and rogue governments to finance their illicit activities.
00:33Despite these dangerous flaws, we will not have the opportunity to offer one single substantive amendment.
00:44And the legislative process, I think, would require, with a bill of this significance in nature, a very vigorous amendment process.
00:54This legislation before us places the government's stamp of approval on so-called stablecoins,
01:03which are crypto dollars that could be minted by anyone.
01:07Amazon, Walmart, Facebook, X, the Trump family, and even foreign companies.
01:14It gives stablecoin issuers an enormous privilege, a U.S. government license to effectively create dollars without demanding very much of anything in return.
01:30And here's how the business works.
01:33You give a stablecoin company a dollar.
01:36The company gives you back an IOU that is recorded on a blockchain.
01:43The stablecoin company takes your dollar and invests it in various assets that generate interest and yield.
01:50The company keeps that interest and yield, but it is supposed to give you back your dollar whenever you ask for it.
01:58You can also take the IOU, which you receive for your dollar, and transfer it to other people.
02:06And you can use it to buy other things, mostly other crypto.
02:11If this sounds similar to a bank, that's because it is.
02:16Banks allow customers to send and receive money.
02:20Stablecoins allow customers to do the same thing.
02:22Now, competition can force banks to do a better job, and it should be more convenient for consumers to transfer funds.
02:39However, I believe that competition should come from the merits of the product and the underlying technology,
02:47not from regulatory arbitrage, as provided in the Genius Act.
02:54The light-touch regulatory regime in this bill is premised on two faulty assumptions.
03:01First, it assumes customer funds are safe because they are fully reserved with one-to-one backing of all customer liabilities.
03:10And second, it assumes that stablecoin issuers are inherently risk-free because they engage in only one activity, issuing stablecoins.
03:23But experience tells us that these kinds of assumptions are flawed.
03:28During the 2008 financial crisis, we saw institutions with very similar, if not exact, characteristics fail
03:38and get billions in tax bailouts.
03:42We were assured that money market funds were low-risk because they were fully reserved with shares pegged to a dollar.
03:50We were assured that derivatives were innovative tools that didn't need heavy-handed regulation.
03:57And we were assured that Fannie and Freddie were safe because they engaged in one simple business.
04:05However, taxpayers needed to backstop $2 trillion in money market fund liabilities.
04:14The government gave AIG, an insurance company involved with derivatives, a $200 billion bailout.
04:23And taxpayers still stand behind $8 trillion in Fannie and Freddie liabilities.
04:30Now, Mr. President, I do not believe that it is appropriate to apply the full spectrum of banking regulations to stablecoins.
04:39But many more elements of the banking laws and the money transmission laws must be imported into this bill in order to make it work.
04:51There are dozens of sensible and basic rules that apply to similar firms that handle people's money.
04:59The Genius Bill says that stablecoin companies no longer need to comply with many of these consumer protection laws.
05:10Instead, they can comply with a federal framework containing very few of them.
05:16Now, let me highlight a few specifics that I think the public should be aware of.
05:22First, stablecoin companies could operate with near zero capital.
05:27Now, the bill says that capital requirements shall not exceed what is sufficient to maintain the ongoing operations of the issue.
05:40This established a ceiling, not a floor, not a minimal level of capital that regulators would deem appropriate given the business activities.
05:51This repeats the mistakes of the 1990s and the 2000s, when non-bank financial institutions like Lehman Brothers operated with barely 3% capital ratios.
06:05When the firm got in trouble, there was no cushion to bear losses.
06:11Customers and taxpayers had to step in.
06:15And strong capital is critical.
06:17Indeed, 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.
06:33Second, the audit requirement is calibrated so narrowly that it does not cover a single existing stablecoin company.
06:44Not one.
06:45Independent audits make it harder for companies to cook the books or dip into customer funds.
06:53I can't imagine why we wouldn't require these types of audit for stablecoin companies holding vast amounts of cash and securities.
07:03Third, there are no merger or change in control rules.
07:08These rules, if in place, could prohibit felons convicted of financial crimes and fraud from acquiring a stablecoin issuer.
07:19Now, with this bill, if it passes, they can go ahead and acquire them.
07:26Fourth, the enforcement provisions are dangerously weak.
07:30Fourth, the government will need to wait until wrongdoing has already occurred before it can act.
07:37It would be powerless to intervene early to prevent people from getting harmed in the first place.
07:44And even then, there is no power for regulators to revoke a company's charter.
07:50Fourth, if one of these companies brazenly mishandles customer funds, the regulators will not have adequate tools to stop them.
08:00Fifth, when a stablecoin company fails, it must go through ordinary bankruptcy.
08:07And that, I believe, is a mistake.
08:12We've seen other crypto firms like FTX and Celsius go bankrupt recently.
08:19Customers have been waiting for many, many months, and in some cases years, to get their money back.
08:26Instead, we should set up a bank-like resolution regime, guaranteeing that customers immediately get their money back up to a limit.
08:39And the industry should pay for that insurance to satisfy those customers who have been denied their funds.
08:49Sixth, regulators have no express authority to issue new rules to address emerging threats as they arise.
09:00Without the ability to issue updated rules, the Genius Act will become outdated very quickly.
09:08Given the speed of innovation and acceleration in all areas, particularly financially,
09:15these regulations would probably be out of date maybe within a year or less.
09:26Together, these flaws make the Genius Bill worse than the status quo.
09:32And that brings me to what I consider one of the biggest problems in the legislation,
09:37the effect on national security.
09:39Genius allows foreign-based stablecoin companies to operate freely in the United States.
09:47Today, the world's largest stablecoin, in other words, the world's largest crypto dollar,
09:55is issued not in the United States, but in El Salvador.
10:00The stablecoin is called Tether, and it is the biggest beneficiary of this bill.
10:06And let me tell you a bit about Tether.
10:08Tether was fined by U.S. regulators in 2021 for misleading customers into thinking that their funds were fully backed.
10:18Despite this misconduct, Tether has never undergone an audit, and this bill would not require one.
10:27Tether is used by North Korea.
10:29According to FBI indictments in 2023, North Korean IT workers have, quote,
10:38obtained illegal employment in the tech and crypto industry,
10:42and then asked to be paid in stablecoins like Tether.
10:48After receiving payments, they funneled their earnings back to North Korea, close quote.
10:53According to the government reports, North Korea has used at least $5 billion of stolen crypto to fund its weapons of mass destruction programs.
11:05This comprises between 40% and 50% of its budget for these programs.
11:11Tether is also used by terrorists.
11:41Another because it has, quote,
11:43"...facilitated significant illicit finance activity, including significant terrorism financing for Hamas's malviolent attack on Israel."
11:54And Tether is used by Russian arms dealers.
11:59According to testimony before the Banking Committee by the Deputy Treasury Secretary in 2024,
12:06we've seen Russia increasingly turning to alternative payment mechanisms,
12:11including the stablecoin Tether,
12:13to try to circumvent our sanctions and continue to finance its war machine in Ukraine.
12:20Tether is also used for human trafficking, scams, and frauds.
12:26According to a report published by the United Nations in 2024,
12:31Tether, quote,
12:32"...has become a preferred choice for South Asian cyber fraud operations and money launderers alike
12:40due to its stability and the ease and amenity and low fees of its transactions."
12:48During a single year, from the middle of 2022 through the middle of 2023,
12:54a blockchain analysis company uncovered $17 billion of Tether transactions
13:02connected to various criminal activities, including human trafficking and romance scams.
13:11And the list goes on.
13:13Iranian diplomats, Venezuelan oil companies, drug traffickers, ransomware attackers,
13:19all are drawn to Tether and other cryptocurrency.
13:24Under the Genius Bill, Tether could be offered and sold in the United States
13:29without being required to meet any U.S. anti-money laundering or sanctions compliance requirements.
13:38Tether would just need to demonstrate the ability to freeze its coins if they fall into the wrong hands,
13:46a technological capability that Tether already has
13:50and that it has apparently refused to use because it still tolerates illicit activity.
13:58Tether would not be subject to full-blown licensure and supervision.
14:03Tether would instead need to meet home country requirements in El Salvador
14:09that are comparable to U.S. requirements.
14:12But this term is ill-defined and may be maturely weaker than the standards in the United States.
14:18In fact, I would suggest those standards are highly subjective given the arrangements we've seen in El Salvador
14:29with its president and its legal system.
14:34And these weak restrictions would not even kick in for three years after enactment.
14:40That means business as usual for Tether and other cryptocurrencies.
14:44It means more, practically speaking, WMD proliferation, more Iranian oil sales, more Russian arms deals,
14:52more tax evasion, more black market drug sales, and more human trafficking.
14:57Further, if Tether chooses not to meet these bare requirements,
15:04then it could not be offered or sold on centralized trading venues in the United States.
15:09But there is a huge exception allowing Tether to offer its stable coins in the United States
15:18through decentralized trading venues, also known as DeFi.
15:24DeFi platforms are exactly where North Korea trades crypto
15:28and where the bulk of illicit activity occurs.
15:31According to the Treasury Department, North Korea laundered at least $455 million in stolen crypto
15:41on just one DeFi platform called Tornado Cash as of 2022.
15:49Last year, North Korea laundered at least $147 million through the same platform.
15:55If these trades occurred with real dollars in real banks, the government would have tools to stop them.
16:03But because these trades occur using foreign-issued crypto dollars outside the banking system,
16:10the government lacks these tools, and the Genius Act would not give them those tools.
16:16As we place in effect, or by default, the U.S. government's stamp of approval on Tether,
16:23I think it's entirely sensible to be providing Treasury with new authorities
16:29to address how Tether is used for illegal purposes around the world.
16:36We should also be looking at the stronger approach taken in Europe,
16:41where Tether may not be offered or sold, full stop,
16:46unless it is fully licensed and meets all EU laws.
16:52If someone is in the business of creating dollars in any form,
16:56they should be subject to the full U.S. jurisdiction.
17:00If someone creates a platform that is used by North Korea to launder stolen dollar alternatives,
17:06they should be within the reach of U.S. sanctioned laws.
17:11I hope Republican-Democrats can at least agree on that.
17:16But this bill does not respect these common-sense principles.
17:21Last Congress, the Department of the Treasury sent up a legislative package
17:26with new authorities to crack down on Tether.
17:30The Deputy Secretary testified before the Banking Committee about that package.
17:34I worked across the aisle with Senators Warner, Rounds, and Romney
17:39on legislation to implement some of these provisions.
17:44Unfortunately, we could not get it enacted.
17:48The bill before us contains none of these provisions.
17:53I have filed an amendment to provide these tools to Treasury,
17:56but regrettably, as I have indicated before,
18:00we will not have an opportunity to vote on any amendments.
18:05Mr. President, there is another aspect of this bill
18:10normalizing the operation of Tether.
18:14It turns out that Trump's Commerce Secretary, Howard Lutnick,
18:19has millions of dollars in financial interest tied to Tether.
18:23The investment bank, Cantor Fitzgerald, that Mr. Lutnick ran and owned,
18:29manages Tether's reserves and generates millions of dollars in fees.
18:35Cantor has provided Tether with working capital
18:37through a hybrid debt-equity investment.
18:40It has been reported that Cantor owns 5% of Tether,
18:45a stake worth millions of dollars.
18:47Cantor and Tether have just announced
18:50a new Bitcoin fund for retail investors.
18:55Now, Mr. Lutnick, the Secretary of Commerce,
18:57and someone that will have, I think, some influence
18:59in how this bill is regulated or turned out,
19:04says he is divested from Cantor.
19:07But what he has really done is turned ownership and control
19:11over to his adult children who are in their 20s.
19:14Now, I invite the American people to judge for themselves
19:18whether Mr. Lutnick no longer has any financial exposure
19:22or business ties with Tether.
19:25And just a few months ago,
19:27the Trump family began issuing a stable coin called USD1.
19:33This token has already been used by a foreign government
19:36to funnel money to Trump.
19:38Let me say that again.
19:40A foreign government has funneled money
19:43to the President of the United States.
19:47It turns out an Abu Dhabi sovereign wealth fund
19:50made a $2 billion investment in a crypto company called Binance.
19:56But instead of using real dollars,
20:00they used USD1, the Trump cryptocurrency.
20:06That raises, I think, serious questions
20:09about a President of the United States
20:13receiving significant millions of dollars
20:20from a foreign country.
20:21And rather than doing something about
20:24the President's obvious conflicts,
20:29the bill expressly affirmed
20:31that he is able to call his stable coin USD1.
20:36There is actually a provision,
20:39green line of this name.
20:40We have given legislatively
20:42the President's sole use of this thing
20:46for his benefit,
20:50his financial benefit.
20:52And the bill empowers
20:54the President's hand-picked regulators
20:56to write the rules
20:57that will govern the stable coin business.
21:02By authorizing money creation
21:04by shadowy offshore firms
21:06associated with
21:08the President of the United States
21:10and the Secretary of Commerce,
21:12this bill undermines
21:15our economy's most valuable asset.
21:18If not immediately,
21:20then I think eventually.
21:22And that's the U.S. dollar.
21:24The dollar is the world's reserve currency
21:27because the United States
21:28is considered stable, predictable,
21:33an open society
21:34with the strong rule of law
21:36that countries and businesses
21:38want to trade and partner with.
21:40When the United States
21:43becomes less stable,
21:45less predictable,
21:46and less open,
21:48when politically connected people
21:50get special treatment,
21:52when Congress normalizes
21:54financial self-aggrandizement
21:56by the President,
21:59all of that makes the dollar
22:01less attractive
22:01and makes this country look
22:03like a third-wheel despot.
22:07However, proponents claim
22:12this bill strengthens the dollar
22:14by stimulating demand
22:16for Treasury securities.
22:19But that cannot be justified
22:21at this point by the data.
22:24The entire stable coin market
22:26is only 0.01% of the Treasury market.
22:31And according to an investor letter
22:33from the Elliott Hedge Fund,
22:35Now, that firm is run
22:36by a major Republican donor,
22:39so I don't think this is
22:40a partisan description.
22:42The dollar enjoys
22:44an immense advantage
22:45as the world's reserve currency.
22:49But they point out
22:50if the U.S. government
22:51encourages adoption
22:53of crypto alternatives,
22:55that will, quote,
22:56marginalize the dollar
22:58and be, quote,
23:00profoundly dangerous.
23:01Even as legislation
23:04would modestly strengthen
23:05the dollar,
23:06it could not offset
23:08the erosion to the dollar
23:09that the administration
23:11is engineering
23:13through complementary actions
23:16like sky-high tariffs
23:18and a trade embargo on China.
23:22And it could accelerate
23:24the erosion of the dollar
23:25if one day
23:27stable coins
23:28become legal tender.
23:31For example,
23:32legal tender
23:33that can be used
23:34to pay taxes.
23:36And it wouldn't surprise me
23:38if one day
23:38the president
23:39sat at his desk
23:40and wrote a presidential order
23:41that crypto
23:43can pay taxes.
23:44I offered actually
23:47an amendment
23:47in the committee
23:48which would
23:50prohibit this
23:52by declaring
23:53that the legal tender
23:54of the United States
23:55was the dollar
23:56and the amendment
23:58was defeated.
24:01Mr. President,
24:02we need to apply
24:03real guardrails
24:05that will protect consumers
24:06and provide real tools
24:08for our national
24:09security agencies
24:10to address
24:11this new technology.
24:12real guardrails
24:14and real tools.
24:16Not words
24:16on a page
24:18that gives the false
24:18appearance of protection
24:20when things go wrong.
24:23I would urge my colleagues
24:24to oppose
24:25this fundamentally
24:26Floyd bill.
24:27And, Mr. President,
24:28I would yield the floor.