Key Takeaways: Crypto venture firm Paradigm and the Hyperliquid Policy Center warned that proposed US anti-money laundering rules could force regulated stablecoins off decentralized finance platforms.
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Paradigm, Hyperliquid urge Treasury to revise $29M-backed AML rule
Crypto venture firm Paradigm and the Hyperliquid Policy Center warned that proposed US anti-money laundering rules could force regulated stablecoins off decentralized finance platforms.
Paradigm and the Hyperliquid Policy Center urged the US Treasury to revise a proposed anti-money laundering rule, arguing that secondary-market liability would impose obligations on stablecoin issuers they cannot control.
"An issuer facing obligations it cannot meet on the secondary market has a strong incentive to deploy only to permissioned environments," the groups wrote in a joint letter to the Treasury on Tuesday. They added that offshore alternatives could fill any resulting gap.
The proposal, issued in April by the Financial Crimes Enforcement Network and the Office of Foreign Assets Control, would treat stablecoin issuers as financial institutions under the Bank Secrecy Act, implementing provisions of the GENIUS Act. The groups endorsed FinCEN's focus on primary-market compliance — where issuers know their customers — but said extending liability to smart contract interactions on public blockchains exceeds issuer capacity, as issuers only see wallet addresses and transaction amounts.
The GENIUS Act, which passed last year with support from President Donald Trump's administration, gave regulators authority to craft stablecoin rules. FinCEN and OFAC will review submitted comments before issuing a final rule, with the scope of DeFi liability emerging as a key variable for the digital-asset industry's regulatory framework.
The joint letter recommended narrowing the definition of "payment stablecoin-related activity" and asked regulators to reconsider OFAC's treatment of smart contract interactions. The groups argued that the proposed rule's broad language could effectively require stablecoin issuers to monitor all secondary-market transactions — a task they said is technically infeasible on permissionless blockchains. They proposed that regulators align AML and sanctions requirements with the technical reality of public blockchains, where issuers cannot identify counterparties in secondary-market transactions.
Hyperliquid Foundation established the Hyperliquid Policy Center in February, funding the advocacy group with roughly $29 million worth of HYPE tokens. Jake Chervinsky, a former general counsel at Compound Labs, serves as the center's chief executive officer. Paradigm, which has backed Hyperliquid, co-signed the letter addressed to Treasury officials.
The pushback comes as US regulators work through the rulemaking phase of the GENIUS Act. Lawmakers advanced the legislation to provide clearer rules for digital assets, but industry participants warn that overly broad AML obligations could push stablecoin activity offshore. The debate mirrors similar discussions in the UK, where lawmakers have urged the Bank of England to ease proposed stablecoin restrictions, and in Europe, where regulators are entering the enforcement phase of the Markets in Crypto-Assets Regulation.
This article is for informational purposes only and does not constitute investment advice.
