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Hyperliquid Policy Center and Paradigm filed a joint comment urging FinCEN and OFAC to narrow parts of a proposed stablecoin compliance rule tied to the GENIUS Act, warning that overly broad obligations could hurt DeFi and push US regulated stablecoins away from permissionless blockchains.
The comment broadly supports the agencies’ proposed rule for permitted payment stablecoin issuers, or PPSIs, particularly FinCEN’s decision to tailor most compliance obligations to the primary market. That includes activities where an issuer has a direct customer relationship, such as issuance, redemption, and custody.
The groups said the rule should preserve a clear distinction between primary market activity and secondary market activity. Secondary market activity includes downstream wallet transfers, decentralized exchange trades, and other transactions where the issuer’s smart contract is used but the issuer has no direct relationship with the parties involved.
HPC and Paradigm argued that compliance rules should follow the same logic used in traditional finance. A bank performs due diligence on customers who open accounts, but does not monitor how those customers spend cash after withdrawing it.
The groups said stablecoin issuers should be required to know their own customers, not every wallet that later touches their tokens.
The comment backs FinCEN’s decision not to require suspicious activity reports for secondary market transactions, arguing that issuers usually lack the customer information needed to assess wallet transfers beyond addresses and amounts.
The groups raised sharper concerns with OFAC’s proposed approach. They argued that OFAC appears to treat smart contract interactions as an ongoing service provided by the issuer, potentially making stablecoin issuers liable for secondary market transactions they cannot meaningfully monitor or control.
HPC and Paradigm warned that this could create a strong incentive for issuers to avoid permissionless blockchains and deploy only in permissioned environments. They said that outcome could pull US regulated stablecoins out of DeFi and leave room for offshore, unregulated, and non dollar alternatives to fill the gap.
The comment also asked the agencies to confirm that downstream developers, validators, decentralized exchange protocols, lending protocols, and self custody interfaces are not covered by obligations Congress excluded from the GENIUS Act.
The groups warned that a broad reading could create legal uncertainty for US based infrastructure providers.
The groups also recommended that the final rule recognize programmable compliance tools, including smart contract transfer restrictions and token level blacklist controls, as valid ways for issuers to meet technical requirements.
They said these controls can block prohibited transfers before they occur, rather than relying only on after the fact monitoring.
HPC and Paradigm also asked OFAC to give compliant issuers more certainty, including clearer penalty reductions and a presumption that issuers with strong sanctions programs are meeting the rule’s requirements.
Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.
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