The lobbying arm of crypto futures exchange Hyperliquid and venture capital firm Paradigm have called on the US Treasury Department to revise the proposed anti-money laundering rule and sanctions for stablecoin issuers.
Center for Hyperfluid Policy and Paradigm he said in a letter on Tuesday that some secondary market obligations should be clarified or narrowed “to avoid unintended consequences for permissionless blockchain infrastructure and the DeFi ecosystem.”
The two said they support the Financial Crimes Enforcement Network’s (FinCEN) approach of placing compliance obligations on the “primary market,” such as issuers that have customer information, and taking a “limited approach” to the secondary market, where issuers see only wallets and transactions.
“The same principle should guide agencies in enforcing AML and sanctioning requirements for stablecoins deployed in permissionless environments,” they argued.
The letter was in response to a rule proposed by the Treasury Department in April to implement provisions of the GENIUS Act relating to stablecoin issuers, which require stablecoin issuers to have the ability to block, freeze or reject transactions that violate US law or sanctions in the primary and secondary markets.
Source: Stefan Schropp
Hyperliquid and Paradigm said the proposal moves secondary market activity into the perimeter of issuer compliance that they “cannot meaningfully control.”
They argued that it also treats smart contract interactions as activity liable for sanctions “regardless of whether the issuer has any relationship with or visibility into the parties to the transaction.”
The two said an issuer facing the proposed obligations would only be incentivized to implement in a permissive environment, which they argued would see US-regulated stablecoins withdraw from decentralized finance to create a “void filled by unregulated, offshore, non-dollar alternatives.”
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US President Donald Trump signed the GENIUS Act into law last year, which outlined how stablecoins and their issuers should be regulated. Federal agencies are currently considering how to implement the law, which is scheduled to take effect in January 2027 at the latest.
The Senate is currently debating a crypto bill that could include further rules for stablecoin issuers and remove responsibility for crypto platform developers related to money laundering and sanctions compliance.
Provisions for the bill, dubbed the CLARITY Act, are still under debate, and some lawmakers are pushing for a full Senate vote on the bill before the November election.
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