Hyperliquid and Paradigm Call for Changes to GENIUS Act Anti-Money Laundering Rules

The Hyperliquid Policy Center and Paradigm argue that the Treasury Department’s anti-money laundering requirements under the GENIUS Act place an excessive compliance burden on stablecoin issuers and could create significant operational challenges for firms in the sector.

The advocacy division of crypto derivatives exchange Hyperliquid, together with venture capital firm Paradigm, has called on the US Treasury Department to reconsider a proposed rule covering anti-money laundering and sanctions compliance requirements for stablecoin issuers.

In a letter submitted on Tuesday, the Hyperliquid Policy Center and Paradigm stated that certain requirements tied to secondary market activity should be refined or more clearly defined to prevent unintended effects on permissionless blockchain networks and the broader decentralized finance ecosystem.

The two organizations said they support the Financial Crimes Enforcement Network’s (FinCEN) framework, which places compliance responsibilities on participants in the primary market, such as issuers that collect customer data. They also backed a more limited regulatory approach for the secondary market, where issuers generally have visibility only into wallet addresses and transaction activity.

“The same principle should guide the agencies’ implementation of AML and sanctions requirements for stablecoins deployed to permissionless environments,” they argued.

The letter responded to a Treasury proposal introduced in April to carry out provisions of the GENIUS Act affecting stablecoin issuers. Under the proposed rule, issuers would be required to maintain the ability to block, freeze, or reject transactions that breach US laws or sanctions across both primary and secondary market activity.

Hyperliquid and Paradigm argued that the proposal extends compliance responsibilities into secondary market transactions, placing activities within an issuer’s regulatory scope that the firms say cannot be effectively monitored or enforced in practice.

They contended that the proposal effectively classifies smart contract interactions as transactions subject to sanctions-related liability, even when issuers have no direct connection to the parties involved and lack visibility into who is conducting the transactions.

The two groups argued that the proposed requirements would encourage issuers to operate only within permissioned networks. They warned that such a shift could drive US-regulated stablecoins out of decentralized finance, leaving space for unregulated offshore alternatives and non-dollar-based assets to gain greater market share.

US President Donald Trump signed the GENIUS Act into law last year, establishing a regulatory framework for stablecoins and the companies that issue them. Federal regulators are now working through the implementation process, with the legislation expected to take effect no later than January 2027.

The Senate is actively considering a cryptocurrency measure that may introduce additional oversight requirements for stablecoin issuers. The proposal could also shield developers of crypto platforms from liability tied to anti-money laundering obligations and sanctions compliance matters.

Key elements of the proposed legislation, known as the CLARITY Act, remain under negotiation as lawmakers continue to refine the measure. Several legislators are also advocating for the bill to receive a full Senate vote before the November elections take place.