Hyperliquid, Paradigm ask Treasury to narrow stablecoin rule

Hyperliquid Policy Center, the lobbying arm of the Hyperliquid exchange, and venture firm Paradigm delivered a letter to the U.S. Treasury on Tuesday asking the agency to narrow proposed anti-money laundering and sanctions requirements for stablecoin issuers. The firms said the rule as drafted would extend obligations into secondary markets where issuers lack customer relationships and visibility.

They endorsed the Financial Crimes Enforcement Network’s approach of concentrating compliance on the “primary market”—where issuers hold customer information-and applying a limited approach to the secondary market, where issuers generally see only wallet addresses and transactions. “The same principle should guide the agencies’ implementation of AML and sanctions requirements for stablecoins deployed to permissionless environments,” the letter wrote.

The Treasury proposed the rule in April to implement parts of the GENIUS Act. The proposal would require stablecoin issuers to have the technical ability to block, freeze or reject transactions that violate U.S. law or sanctions on both the primary and secondary markets. Hyperliquid and Paradigm argued that treating smart contract interactions as activities that carry sanctions liability “regardless of whether the issuer has any relationship with, or visibility into, the transacting parties” would place enforcement duties on entities that cannot meet them.

They warned that broad secondary-market obligations would push issuers toward permissioned platforms, removing U.S.-regulated stablecoins from decentralized finance and creating space for unregulated, offshore, non-dollar alternatives. The letter urged regulators to distinguish between primary counterparty relationships and blockchain-level interactions that issuers cannot practically police.

Federal agencies are drafting rules to implement the GENIUS Act ahead of a January 2027 implementation deadline. Separately, the Senate is negotiating a broader crypto package that could add stablecoin rules and limit developer liability for money-laundering and sanctions violations; sponsors are seeking a vote before the November elections.

Industry groups and some lawmakers have called for clearer limits on issuers’ responsibilities on public blockchains. Regulators have said they need additional tools to prevent illicit finance and enforce sanctions.