On June 9, the Hyperliquid Policy Center (HPC) and venture capital firm Paradigm jointly sent a comment letter to the US Treasury. In it, they asked the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) to refine parts of their proposed stablecoin compliance rule linked to the $GENIUS Act.
They broadly support the proposed rule, especially FinCEN’s decision to tailor most issuer obligations to the primary market. But they recommend that certain secondary market obligations be clarified or narrowed. The goal is to avoid unintended consequences for permissionless blockchain infrastructure and the DeFi ecosystem.
Key points from the letter
Paradigm and HPC listed six areas where they think regulators should improve the proposed stablecoin regulations. They want more precise rules about the obligations of stablecoin developers and issuers regarding secondary-market trading. They also urge clarification on when issuers must block, freeze, or reject transactions.
The groups propose enhancements to safe harbor protections for Suspicious Activity Report (SAR) filings. They also urge regulators to clarify the extent of adherence to legitimate government directives. Additionally, they call for improvement in Customer Due Diligence (CDD) regulations. They are eyeing further clarification on secondary market obligations related to sanctions, including the definition of an effective sanctions compliance program.
Simply put, the goal is to make compliance requirements realistic, well-defined, and compatible with how decentralized blockchain networks actually function.
Community reaction and additional context
Although the $GENIUS Act specifically forbids stablecoin issuers from paying out yields to holders, third-party cryptocurrency companies are exempt from this rule. To address this, the CLARITY Act would maintain activity-based stablecoin rewards. If passed, it would allow exchanges and other third-party businesses to allocate yield under that standard.
The crypto community praised this move. Jacob Robinson, host of Law of Code, and Brad Bourque, Policy Counsel at HPC, both expressed supportive sentiments.
Main concerns
The primary worry is that the proposed rules of the $GENIUS Act may inadvertently extend to decentralized blockchain infrastructure and secondary-market activity. The groups argue that overly strict KYC, sanctions, and monitoring regulations could deter issuers from using permissionless blockchains. This might impede DeFi innovation and drive operations offshore.
This discussion comes as the New York State Department of Financial Services (NYDFS) proposed a comprehensive new stablecoin regulation framework. Its purpose is to bring the state’s oversight system into line with federal requirements under the $GENIUS Act.
