Paradigm, Hyperliquid ask Treasury to narrow stablecoin rule

Paradigm and the Hyperliquid Policy Center wrote to the U.S. Treasury on Tuesday asking the agency to narrow a proposed anti-money-laundering rule from the Financial Crimes Enforcement Network and the Office of Foreign Assets Control. The groups said the April proposal would implement parts of the GENIUS Act and treat stablecoin issuers like financial institutions under the Bank Secrecy Act.

The letter praised FinCEN’s focus on primary-market controls, where issuers can identify customers, and recommended lighter obligations for secondary-market activity, where issuers typically see only wallet addresses and transaction amounts. The organizations argued that extending primary-market controls to permissionless blockchains would force issuers to police transactions they cannot control.

HPC and Paradigm asked regulators to narrow the definition of “payment stablecoin-related activity” and to reconsider OFAC’s proposed treatment of smart contract interactions. They warned that tying issuer liability to on-chain smart contract activity would amount to “strict liability for transactions they cannot meaningfully police,” and would push regulated issuers toward permissioned environments.

The letter cautioned that issuers facing obligations they cannot meet in the secondary market would have an incentive to avoid public blockchains. The groups wrote that U.S.-regulated stablecoins could be pulled out of decentralized finance, leaving space for unregulated, offshore non-dollar alternatives.

Paradigm is a crypto venture capital firm and a backer of Hyperliquid. The Hyperliquid Policy Center was created earlier this year with a roughly $29 million donation of HYPE tokens from the Hyperliquid Foundation and is led by CEO Jake Chervinsky.

Congress passed the GENIUS Act last year. Regulators are now in the implementation and rulemaking phase and are seeking public comment before finalizing requirements. The April joint proposal from FinCEN and OFAC would extend anti-money-laundering and sanctions compliance obligations to stablecoin issuers, and several industry participants have submitted feedback requesting limits on how far those obligations should extend into decentralized networks and smart contract interactions.