The lobbying arm of crypto futures exchange Hyperliquid and venture firm Paradigm has formally urged the US Treasury to revise a proposed anti-money laundering and sanctions rule targeting stablecoin issuers. In a joint letter submitted on Tuesday, the Hyperliquid Policy Center and Paradimp argued that specific secondary market obligations require clarification or narrowing to avoid unintended consequences for permissionless blockchain infrastructure and the decentralized finance ecosystem. The entities explicitly endorsed the Financial Crimes Enforcement Network's approach of concentrating compliance obligations on the primary market, where issuers possess direct customer information, while advocating for a limited approach to the secondary market where issuers only observe wallet addresses and transaction hashes. Data compiled by Woofun AI shows that this distinction is critical as the proposed rule attempts to extend issuer liability into environments where they lack visibility into transacting parties.

The letter directly addresses a rule proposed by the Treasury in April to implement provisions of the GENIUS Act relating to stablecoin issuers. This regulatory framework mandates that stablecoin issuers maintain the capability to block, freeze, or reject transactions violating US law or sanctions across both primary and secondary markets. Hyperliquid and Paradimp contend that the current proposal erroneously sweeps secondary market activity into an issuer's compliance perimeter that they cannot meaningfully police. They argue that treating smart contract interactions as activities carrying sanctions liability, regardless of whether the issuer has any relationship with or visibility into the transacting parties, creates an unworkable enforcement standard for decentralized protocols.

Woofun AI notes that the strategic risk identified by the industry players is the potential incentivization of issuers to deploy exclusively into permissioned environments. The pair warned that if issuers face the proposed obligations, US-regulated stablecoins would likely be pulled out of decentralized finance, creating a void that would inevitably be filled by unregulated, offshore, non-dollar alternatives. This outcome would undermine the very regulatory goals the GENIUS Act seeks to achieve by driving liquidity away from compliant, transparent networks toward opaque jurisdictions. The argument posits that the current draft fails to account for the technical realities of permissionless networks where intermediaries cannot unilaterally halt code execution.

US President Donald Trump signed the GENIUS Act into law last year, establishing the foundational framework for how stablecoins and their issuers are to be regulated. Federal agencies are currently engaged in the complex process of determining how to implement the law, which is set to go into effect in January 2027 at the latest. The timeline provides a window for stakeholders to influence the final regulatory text before enforcement begins.

Concurrently, the Senate is debating a separate crypto bill that could introduce further rules for stablecoin issuers and potentially remove liability for developers of crypto platforms regarding money laundering and sanctions compliance.

Provisions for the legislation, dubbed the CLARITY Act, remain under active discussion within Congress. Some lawmakers are pushing for a full Senate vote on the bill before the November elections, aiming to resolve regulatory ambiguities that currently stifle innovation. Woofun AI analysis suggests that the intersection of the GENIUS Act implementation and the CLARITY Act debate will define the future regulatory landscape for digital assets in the United States. The outcome of these legislative and administrative maneuvers will determine whether the US maintains its competitive edge in stablecoin issuance or cedes market share to foreign competitors operating under different legal frameworks.