Paradigm urges narrower US stablecoin compliance rules

TLDR

Paradigm is asking US regulators to narrow new stablecoin compliance rules so issuers and DeFi infrastructure are not held liable for transactions they cannot realistically police.

1. Paradigm and Hyperliquid Policy Center support the GENIUS Acts goals but want secondary market AML and sanctions duties narrowed and clarified for stablecoin issuers.
2. They warn that overbroad rules could push US regulated stablecoins out of DeFi, favoring permissioned or offshore alternatives and even implicating validators and smart contract developers.
3. Multiple agencies are still in rulemaking, so the key near term question is how Treasury, FDIC and Congress adjust these proposals before the GENIUS framework fully takes effect.

Deep Dive

1. What Paradigm Is Arguing For

Paradigm and the Hyperliquid Policy Center (HPC) filed a joint comment asking the US Treasurys FinCEN and OFAC to revise a proposed anti money laundering and sanctions rule for stablecoin issuers under the GENIUS Act. They broadly back the framework but say some obligations should be clarified or narrowed in secondary markets to avoid unintended damage to permissionless blockchain infrastructure and DeFi ecosystems.

Specifically, they support focusing compliance on the primary market, where issuers know their customers, and oppose extending strict liability to all secondary market activity, where issuers see only wallet addresses rather than real identities. They argue that, as with cash withdrawals from a bank, issuers should not be responsible for monitoring every downstream DeFi transaction after a stablecoin leaves the issuers hands, as outlined in their letter summarized by Cointelegraph and other outlets.

2. Why Overbroad Rules Worry DeFi Users

The draft Treasury rule would require permitted payment stablecoin issuers to maintain AML programs and be able to block, freeze or reject unlawful transactions in both primary and secondary markets. Paradigm and HPC argue this effectively treats all smart contract interactions as sanctionable events and could make issuers liable for transactions they cannot meaningfully police, according to detailed coverage from Cointelegraph and Crypto.news.

They warn that, under this approach, issuers might only deploy tokens into permissioned environments with strict identity checks, pulling US regulated dollar stablecoins out of open DeFi and leaving a gap that offshore, less regulated stablecoins could fill. Some interpretations could even drag validators and protocol developers into the compliance net, encouraging US node operators and block builders to move offshore.

3. Other Fronts And What To Watch Next

Paradigm is also pushing back on related interpretations at other agencies. In a separate FDIC comment, they challenged an expansive reading of the GENIUS Acts yield ban that would restrict exchanges and wallets from offering stablecoin rewards, arguing Congress explicitly limited the ban to issuers themselves, as reported by Crypto.news.

The GENIUS Act is already law and is scheduled to fully reshape US payment stablecoin oversight by January 2027, but the final shape depends on how these agency rules are revised after public comments. Parallel debates over the CLARITY Act and developer liability will influence how much risk DeFi builders carry for user behavior on permissionless chains.

Conclusion

Paradigms intervention aims to keep US stablecoin rules focused where issuers have real control while preserving permissionless DeFi access to regulated dollar tokens. If regulators narrow secondary market duties and avoid sweeping validators and smart contract developers into strict liability, US compliant stablecoins can stay central to DeFi rather than being displaced by offshore alternatives.