Paradigm and the Hyperliquid (CRYPTO: $HYPE) Policy Center are pressing U.S. regulators to narrow a proposed stablecoin compliance rule before it turns DeFi infrastructure into a larger regulatory target.
In a comment letter sent to FinCEN and OFAC, the groups challenged parts of the proposed GENIUS Act rule covering anti-money laundering, counter-terrorism financing and sanctions compliance for permitted payment stablecoin issuers. Their core argument is that stablecoin issuers should be responsible for direct customer relationships, not every secondary-market transfer that happens after a token moves into wallets, DeFi apps or validator-run networks.
That distinction matters because regulated dollar tokens increasingly sit inside onchain trading, lending, collateral and settlement markets. If issuers are treated as responsible for activity they do not control, Paradigm and the Hyperliquid Policy Center warned the rule could create a “chilling effect” and push U.S.-regulated stablecoins away from permissionless blockchains.
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The groups also asked regulators to clarify that wallet addresses simply holding or transferring stablecoins should not automatically become issuer customers. Developers, protocol operators and validators should not face issuer-style duties when they have no direct relationship with the stablecoin company, they argued.
The letter supports the GENIUS Act’s broader goal of bringing stablecoins into a federal framework, but says the final rule needs sharper boundaries around secondary-market activity. Without that, the groups said compliance systems could flood regulators with low-value suspicious activity reports while leaving issuers to monitor activity using only public blockchain data.
The issue is not whether stablecoin issuers should have AML and sanctions programs. It is where those obligations stop once a dollar token leaves the issuer’s own platform.
For DeFi markets, the outcome could shape which stablecoins remain usable across permissionless protocols and whether U.S.-regulated issuers keep building into open blockchain networks.
Hyperliquid (CRYPTO: HYPE) is currently trading at $52.96 U.S. per digital token.
