Image credit: Hyperliquid website
The Hyperliquid Policy Center and Paradigm have asked U.S. Treasury agencies to narrow a proposed anti-money-laundering and sanctions rule for stablecoin issuers under the GENIUS Act.
The groups warned that the draft could, in their view, push U.S.-regulated stablecoins out of DeFi. Their June 9 comment responds to a FinCEN and OFAC proposal that would treat permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act and require sanctions compliance programs.
Primary-Market Stablecoin Rules Draw Support
Hyperliquid and Paradigm said they support much of the proposal, including FinCEN’s focus on the primary market. That is where stablecoin issuers have direct customer relationships through issuance, redemptions and custody.
The groups said issuers can apply stronger AML and sanctions controls in those settings because they have more direct information about customers and transactions.
Secondary-Market Transfers Drive AML Objection
The objection centers on secondary-market activity. That is where stablecoins move through wallets, decentralized exchanges, bridges and smart contracts after issuance. Hyperliquid and Paradigm said issuers usually see only wallet addresses and transaction amounts in those settings, not the customer information needed for full AML review.
The groups also said OFAC’s draft goes too far by treating smart contract interactions as continuing services provided by issuers. They argued that could leave issuers exposed to sanctions liability for transactions they cannot control.
Comment Seeks DeFi Safe Harbor
The groups asked FinCEN to keep its decision not to require suspicious activity reports for secondary-market transfers. They also asked Treasury to extend a safe harbor to decentralized protocol developers, self-custody interfaces and similar platforms that voluntarily help the government with illicit-finance cases.
The comment says programmable controls, including smart-contract transfer restrictions and blacklist enforcement, should be enough to meet the GENIUS Act’s technical capability requirements.
Issuer Duties Should Not Reach Validators
Hyperliquid and Paradigm also asked Treasury to clarify who must follow lawful order obligations. They said those duties should apply only to permitted payment stablecoin issuers.
A broader reading, they warned, could extend obligations to validators, protocol developers and other infrastructure participants that Congress excluded from the law’s scope.
Treasury Review Follows June 9 Deadline
Treasury proposed the rule in April to implement the GENIUS Act’s AML and sanctions requirements for payment stablecoin issuers. FinCEN and OFAC set June 9 as the public comment deadline. The agencies must now review submissions before issuing a final rule.
The outcome will decide how far stablecoin issuers must go when their tokens move through permissionless protocols they do not operate. For DeFi markets, the key question is whether compliant dollar stablecoins can keep circulating on open networks without exposing issuers to liability they say they cannot control.
