The Hyperliquid Policy Center (HPC), along with enterprise capital agency Paradigm, submitted a joint remark to the US Treasury on Tuesday, urging the Monetary Crimes Enforcement Community (FinCEN) and the Workplace of Overseas Property Management (OFAC) to refine components of its proposed stablecoin compliance rule tied to the GENIUS Act.
The rule is meant to implement anti-money laundering (AML) and sanctions necessities for “permitted payment stablecoin issuers” (PPSIs), a class the proposal says ought to be capable of innovate in fee stablecoins whereas working underneath an “appropriately tailored” regime designed to handle illicit-finance danger.
Narrower Compliance, Much less Burden
Whereas they didn’t oppose the general purpose of the framework, Paradigm and the Hyperliquid Policy Center argued that key parts of the proposal want clearer boundaries—particularly the place compliance obligations might unintentionally spill over into areas that don’t match the GENIUS Act’s construction or Congress’s intent.
A significant focus of the feedback is how permitted fee stablecoin issuers’ duties ought to work within the secondary market, the place PPSIs shouldn’t have a direct relationship with the underlying counterparties.
Of their view, the legislation makes clear Congress anticipated due diligence by PPSIs on their very own clients, however didn’t intend a requirement for PPSIs to conduct further diligence for buying and selling that happens within the secondary market.
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The companies drew an analogy to conventional banking, saying that when regulated establishments run KYC when funds enter the system, they don’t seem to be anticipated to watch each spending occasion after money is withdrawn.
In the identical manner, Paradigm and the Hyperliquid Policy Center argued that decentralized peer-to-peer transfers of stablecoins—and different digital property—ought to usually contain KYC solely on the regulated on-ramps and off-ramps, with compliance prices targeted the place the connection exists.
They warned {that a} opposite strategy may drive necessities for PPSIs to file giant numbers of low-value suspicious exercise studies (SARs), creating “noisy” studies with false positives that may impose prices on each PPSIs and FinCEN with out clear public profit.
Hyperliquid Policy Center Urges Clarification
The remark additionally addresses the best way the proposed rule defines and assigns obligations associated to “lawful orders.” Paradigm and the Hyperliquid Policy Center stated the proposal defines “lawful order” by incorporating the GENIUS Act definition of “person,” which in flip determines who might must construct technological capabilities.
They argued that, as drafted, the proposed rule may very well be interpreted too broadly, doubtlessly pulling in builders of distributed ledger protocols, decentralized self-custodial interfaces, and different applied sciences that Congress excluded from the GENIUS Act’s definition of a “digital asset service provider.”
The companies stated this end result wouldn’t align with Congress’s intent, and so they beneficial a clarification within the last rule to explicitly state that sure entities and applied sciences usually are not included throughout the scope of lawful order necessities.
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In response to Paradigm and the Hyperliquid Policy Center, failing to make that clarification may unintentionally impose lawful order obligations on each validator on networks like Ethereum (ETH), Hyperliquid (HYPE), Solana (SOL), and Layer 2 programs that validate transactions involving PPSI-issued stablecoins.
They argued the predictable consequence could be that US validator stakes would transfer offshore, US blockbuilding operations would relocate, and the US share of the chain validator base would decline—outcomes they stated would undermine each the GENIUS Act’s onshoring goals and broader US pursuits.
Featured picture created with OpenArt; chart from TradingView.com
