Hyperliquid, Paradigm Urge US Treasury to Revise Stablecoin Rule

They expressed support for the Financial Crimes Enforcement Network’s (FinCEN) strategy of placing compliance obligations on the primary market, where issuers have direct customer information, and adopting a limited approach to the secondary market, where issuers only have visibility into wallets and transactions. Hyperliquid and Paradigm contended that this principle should also guide the implementation of AML and sanctions requirements for stablecoins operating in permissionless environments.

The letter was a response to a rule proposed by the Treasury in April, which aims to implement provisions of the GENIUS Act. This act mandates that stablecoin issuers be capable of blocking, freezing, or rejecting transactions that contravene US law or sanctions, applicable to both primary and secondary markets.

Hyperliquid and Paradigm stated that the proposed rule extends compliance perimeters to secondary market activities that issuers cannot effectively monitor. They also raised concerns that the proposal treats smart contract interactions as activities carrying sanctions liability, irrespective of the issuer's relationship with or visibility into the transacting parties. The firms warned that such obligations would compel issuers to deploy stablecoins solely within permissioned environments, potentially driving US-regulated stablecoins out of DeFi and creating a vacuum that could be filled by unregulated, offshore, non-dollar alternatives.