Hyperliquid Policy Center and Paradigm have jointly called on the U.S. Treasury to narrow the scope of anti-money laundering obligations for stablecoin issuers in secondary-market transactions under the GENIUS Act. In a June 9 letter, the two groups argued the proposed rule could hold issuers liable for transactions they cannot control, potentially pushing regulated stablecoins away from decentralized finance (DeFi).
Dispute Over Secondary-Market Duties
The rule, proposed by FinCEN and OFAC in April, implements the GENIUS Act signed into law in July 2025. It requires permitted stablecoin issuers to maintain AML and sanctions programs, and to maintain systems that can block, freeze or reject transactions violating U.S. law. Hyperliquid and Paradigm support stronger checks where issuers deal directly with customers, but contend the same standard should not automatically cover transfers routed through wallets, decentralized exchanges and smart contracts.
“The same principle should guide the agencies’ implementation of AML and sanctions requirements,” the letter stated. They explained that primary-market activities — issuance and redemption — give issuers customer records and control, while secondary markets typically reveal only wallet addresses, transaction values and contract interactions, with no user identities.
Strict Liability Risks Liquidity Exodus
Under the current draft, issuers could face strict liability for smart contract activity even when they have no relationship with users. “Issuers are subject to strict liability for transactions they cannot meaningfully police,” the groups warned. That exposure could incentivize issuers to restrict stablecoins to permissioned systems where all participants undergo identity verification. The letter warned that outcome would push regulated dollar stablecoins out of DeFi and leave room for offshore alternatives.
As previously reported by crypto.news, Treasury’s proposed stablecoin AML rules would require bank-style controls across both primary and secondary markets. The draft remains under review and may change after public comments.
CLARITY Act Adds Pressure to Rulemaking
The dispute unfolds as lawmakers advance the CLARITY Act, which includes protections for open-source developers and service providers that do not control customer funds. Solana Institute CEO Kristin Smith urged senators to preserve those developer protections, backed by over 200 crypto companies and organizations. The Senate Banking Committee advanced the CLARITY Act in May, but a full Senate vote has not occurred.
The GENIUS Act, enacted in July 2025, established a federal framework for payment stablecoins. Its operational rules will shape how regulated issuers manage transactions across both controlled platforms and permissionless blockchain networks.