Key facts
- The Blockchain Association urged regulators to limit stablecoin identity checks to direct relationships between issuers and customers.
- The group stated that identity requirements should not extend to downstream peer-to-peer stablecoin transfers.
- The association called for rules allowing issuers to use digital identity tools, including zero-knowledge proofs.
- The proposed rules are part of the implementation of the GENIUS Act, which establishes a framework for stablecoin issuance and use in the U.S.
The Blockchain Association has formally requested that federal financial regulators limit the scope of Know Your Customer (KYC) requirements for stablecoin issuers. In a comment letter dated August 21, addressed to multiple agencies including the Financial Crimes Enforcement Network, the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, the association argued that identity checks should exclusively apply to direct relationships between issuers and their customers. This stance is in response to proposed rules for implementing the Guiding and Establishing National Innovation for U.S. Stablecoins, or GENIUS Act, which was enacted last year to create a framework for stablecoins in the U.S.
The association voiced concerns that extending KYC requirements to downstream, peer-to-peer stablecoin transactions, which issuers do not directly intermediate, could be "nearly impossible" to enforce and potentially "cripple the industry." They specifically noted that such requirements should not apply to wallet-to-wallet transfers, one-off redemptions, technology providers, or unrelated business ventures of an issuer.
Furthermore, the Blockchain Association advocated for the integration of modern identity verification methods, including digital identity tools and zero-knowledge proofs, to enhance compliance flexibility. They also requested that issuers be protected if they reasonably rely on other regulated financial institutions to conduct identity checks. The group emphasized that the implementation of the GENIUS Act should maintain its core objectives of strong safeguards, workable rules, and fostering innovation within the stablecoin sector.