Paradigm, Hyperliquid Ask Treasury to Narrow Stablecoin Rules

On June 9 Paradigm and the Hyperliquid Policy Center submitted a joint comment letter to the U.S. Treasury asking the Office of Foreign Assets Control and the Financial Crimes Enforcement Network to narrow and clarify proposed stablecoin rules tied to the GENIUS Act. The groups argued some provisions could sweep in permissionless blockchain infrastructure and decentralized finance activity.

The letter welcomed the proposal’s overall approach and specifically commended FinCEN for focusing most issuer obligations on the primary market. At the same time, the organizations asked regulators to tighten or clarify provisions that reach secondary-market trading and DeFi protocols. The filing was submitted as part of the rulemaking process linked to federal stablecoin legislation.

Paradigm and Hyperliquid identified six areas for change. They requested a clearer definition of when developers or issuers would be responsible for secondary-market transactions, and more specific guidance on when issuers must block, freeze or reject transactions. The groups urged stronger safe-harbor protections for firms that file Suspicious Activity Reports, clearer limits on how issuers should comply with government directives, revisions to customer due diligence rules, and added detail on secondary-market sanctions obligations, including what constitutes an effective sanctions compliance program.

The letter said the goal of the recommendations is to make compliance obligations realistic and compatible with how decentralized blockchain networks operate. The filing warned that broad know-your-customer, sanctions and transaction-monitoring requirements could push issuers away from permissionless blockchains, slow DeFi development and shift activity offshore.

The submission came as Congress considers the GENIUS Act, which would bar stablecoin issuers from paying yields directly to token holders, and the CLARITY Act, which would preserve activity-based rewards and allow third parties such as exchanges to allocate yield. Commenters including Jacob Robinson and Brad Bourque expressed support for preserving activity-based rewards under the CLARITY framework.

State regulators are acting in parallel. The New York State Department of Financial Services has proposed a stablecoin oversight framework intended to align state rules with federal requirements under the GENIUS Act. Paradigm and Hyperliquid said expansive federal rules that extend into secondary markets could conflict with state proposals and complicate compliance for firms that operate across jurisdictions.

The groups asked regulators to maintain a clear separation between primary-market duties for issuers and secondary-market responsibilities handled by exchanges, custodians and other intermediaries, and to avoid imposing requirements that could be read to apply to permissionless infrastructure such as smart contracts or decentralized exchanges. The comment letter is part of the public input regulators will review as they refine the proposed rule.