Hyperliquid and Paradigm push Treasury to narrow GENIUS Act AML rule for stablecoin issuers

The Hyperliquid Policy Center and Paradigm want the US Treasury to redraw parts of a proposed anti-money laundering and sanctions rule for stablecoin issuers. Their main argument is simple enough: if you make issuers responsible for activity they cannot actually see or control on permissionless blockchains, they will route around DeFi and into permissioned setups instead.

1. In a letter sent on Tuesday, Hyperliquid and Paradigm said some secondary market obligations should be “clarified or narrowed” to avoid “unintended consequences for permissionless blockchain infrastructure and the DeFi ecosystem.” In practice, that is a request to keep compliance duties focused where the issuer has direct visibility, rather than on every downstream wallet interaction.
2. The pair said they support the Financial Crimes Enforcement Network’s (FinCEN) approach of placing compliance obligations on the “primary market,” such as issuers who have customer information, and taking a “limited approach” to the secondary market, where issuers can only see wallets and transactions. Their view is that the same framework should apply when agencies implement AML and sanctions rules for stablecoins deployed to permissionless environments.
3. Their letter responds to a Treasury proposal from April that would implement GENIUS Act provisions for stablecoin issuers. Under that proposal, issuers would need the capability to block, freeze or reject transactions that violate US law or sanctions on both the primary and secondary markets. Hyperliquid and Paradigm say this sweeps secondary market activity into an issuer’s compliance perimeter even though they “cannot meaningfully police” it.
4. They also objected to the proposal treating smart contract interactions as sanctionable activity “regardless of whether the issuer has any relationship with, or visibility into, the transacting parties.” For PSPs and stablecoin issuers, this is the part that matters operationally: if liability follows every protocol interaction, the safer commercial choice is to avoid open networks altogether.
5. The two argued that issuers facing those obligations would be pushed to deploy only into permissioned environments, which could pull US-regulated stablecoins out of DeFi and leave “a void filled by unregulated, offshore, non-dollar alternatives.” The GENIUS Act was signed into law by US President Donald Trump last year, and federal agencies are now working on implementation ahead of a January 2027 deadline at the latest. The Senate is also debating the CLARITY Act, which could add more stablecoin rules and remove developer liability for money laundering and sanctions compliance.