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Hyperliquid Policy Center and Paradigm have urged U.S. regulators to narrow proposed stablecoin compliance rules. They said the draft could push anti-money laundering and sanctions duties far beyond Congress’s intent under the GENIUS Act.
The joint filing went to the U.S. Treasury Department as officials shape standards for permitted payment stablecoin issuers. The groups backed stronger controls on illicit finance, yet said the rules should remain focused on regulated entities that deal directly with customers.
In the filing, the two groups said stablecoin issuers should check their own users. They said issuers should not carry compliance duties across every transaction in secondary markets.
They argued that peer-to-peer trading would create major operational strain. They also warned that such a system would produce large numbers of low-value suspicious activity reports.
The groups said regulators would face the same burden. They said both issuers and agencies could struggle under a flood of reports that add little value.
Hyperliquid Policy Center and Paradigm said compliance should focus on regulated entry and exit points. They said those points already involve customer relationships and offer clearer oversight.
They compared stablecoin oversight to traditional banking. In that system, financial institutions perform know-your-customer checks when money enters the financial system, not on every subsequent transfer.
They said decentralized transfers between users should usually not trigger new checks once assets move beyond regulated intermediaries. They said this approach would preserve oversight without adding unnecessary burdens.
The filing also raised concerns about the Treasury proposal’s lawful order requirements. The groups said the language could reach blockchain validators, protocol developers, self-custodial wallet providers, and other decentralized infrastructure participants.
They said that reading would conflict with congressional efforts to exclude many decentralized technologies from the definition of digital asset service providers. They called for clear language in the final rule.
The groups warned that unclear rules could push validators and infrastructure providers outside the United States. They said networks such as Ethereum, Solana, Hyperliquid, and Layer-2 systems could feel the impact.
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The filing said heavier compliance demands could reduce the U.S. share of global blockchain validation activity. It also said such pressure could weaken the GENIUS Act’s goal of supporting digital asset growth inside the country.
The broader dispute shows the tension between regulators and industry as federal agencies implement stablecoin legislation. Lawmakers and regulators support tougher oversight of dollar-backed stablecoins, yet they still disagree on how far the rules should reach.
The GENIUS Act created the first federal framework for stablecoin issuers in the United States. It requires reserve backing and compliance with anti-money laundering and sanctions rules, while the stablecoin market continues to serve trading, payments, and decentralized finance activity across blockchain networks.
Hyperliquid Policy Center and Paradigm warned that proposed stablecoin compliance rules could stretch AML and sanctions duties beyond the GENIUS Act. They urged the Treasury to keep oversight focused on regulated entry points and to clarify rules for decentralized infrastructure before finalizing the framework.
