Paradigm & HPC Tell Treasury: Keep Stablecoin Rules Off DeFi's Lawn 🏛️

On June 9, the Hyperliquid Policy Center (HPC) and venture capital firm Paradigm submitted a joint comment letter to the US Treasury, urging the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) to refine aspects of a proposed stablecoin compliance rule tied to the GENIUS Act. The groups stated, "We broadly support the proposed rule, and in particular FinCEN's decision to tailor most issuer obligations to the primary market, but write to recommend that certain secondary market obligations be clarified or narrowed to avoid unintended consequences for permissionless blockchain infrastructure and the DeFi ecosystem." The letter outlined six priority areas for regulatory clarification, including the obligations of stablecoin developers and issuers in secondary-market trading, the circumstances under which issuers must block, freeze, or reject transactions, and enhancements to safe harbor protections for Suspicious Activity Report (SAR) filings.

Paradigm and HPC also called for clearer guidance on adherence to legitimate government directives, improvements to Customer Due Diligence (CDD) regulations, and further clarification of secondary market obligations tied to sanctions, including the definition of an effective sanctions compliance program. According to the groups, the recommendations are intended to ensure that compliance requirements are realistic, well-defined, and compatible with the operational realities of decentralized blockchain networks. They warned that overly stringent know-your-customer, sanctions, and monitoring requirements could discourage issuers from using permissionless blockchains, hinder DeFi innovation, and push activity offshore.

Separately, while the GENIUS Act prohibits stablecoin issuers from paying yields to holders, third-party cryptocurrency firms remain exempt from that restriction. The CLARITY Act is expected to preserve activity-based stablecoin rewards, allowing exchanges and other third-party businesses to allocate yield under that framework. The proposal drew support from across the crypto policy community, with Jacob Robinson, host of Law of Code, and Brad Bourque, Policy Counsel at HPC, both endorsing the approach. The developments come as the New York State Department of Financial Services (NYDFS) has introduced its own comprehensive stablecoin regulation framework designed to align state oversight with the federal requirements set out in the GENIUS Act.