Hyperliquid and Paradigm Tell Treasury: Don't Drag Stablecoin Issuers Into DeFi's Wild West 🏜️

Crypto futures exchange Hyperliquid's policy arm and venture firm Paradigm asked the US Treasury on Tuesday to narrow a proposed anti-money laundering and sanctions rule for stablecoin issuers, warning that sweeping secondary-market obligations could push US-regulated stablecoins out of decentralized finance. In a joint letter to Treasury, the Hyperliquid Policy Center and Paradigm said some secondary-market requirements should be clarified or limited "to avoid unintended consequences for permissionless blockchain infrastructure and the DeFi ecosystem."

The letter responds to a rule Treasury proposed in April to implement provisions of the GENIUS Act, which would require stablecoin issuers to block, freeze or reject transactions that violate US law or sanctions on both primary and secondary markets. Hyperliquid and Paradigm endorsed FinCEN's approach of concentrating compliance obligations on the "primary market," where issuers hold customer information, and adopting a "limited approach" to the secondary market, where issuers typically see only wallet addresses and transactions. "The same principle should guide the agencies' implementation of AML and sanctions requirements for stablecoins deployed to permissionless environments," the groups wrote.

Hyperliquid and Paradigm argued the proposal drags secondary-market activity into an issuer's compliance perimeter that they "cannot meaningfully police" and treats smart-contract interactions as carrying sanctions liability "regardless of whether the issuer has any relationship with, or visibility into, the transacting parties." They said issuers facing those obligations would likely deploy only in permissioned settings, which could pull regulated US stablecoins out of DeFi and "create a void filled by unregulated, offshore, non-dollar alternatives."

President Donald Trump signed the GENIUS Act into law last year, and federal agencies are now drafting implementation rules, with the statute set to take effect by January 2027. The Senate is separately debating a crypto package, dubbed the CLARITY Act, that could impose further rules on stablecoin issuers and shield developers of crypto platforms from money-laundering and sanctions liability, with some lawmakers pushing for a full vote before the November elections.