Stablecoin Compliance Proposal Seeks Narrower Focus on Primary Market Activities

The Hyperliquid Policy Center and Paradigm, two prominent industry players, have submitted a joint proposal to the US Treasury's Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC). The proposal seeks to refine the proposed stablecoin compliance rules under the GENIUS Act.

In their submission, the groups argue that regulations should primarily focus on primary market activities where issuers have direct customer relationships. This includes issuance and redemption processes, which would help ensure compliance without unduly burdening the industry.

However, they also caution against broad secondary market obligations, warning that this could push US-regulated stablecoins away from permissionless blockchains and harm the decentralized finance (DeFi) ecosystem as a whole. By imposing such obligations, issuers may be required to know their direct customers, rather than all wallet holders involved in secondary transactions.

The groups recommend recognizing programmable compliance tools that can block prohibited transfers, providing clearer guidance for compliant issuers while maintaining regulatory clarity. They also advocate for reduced penalties for compliant issuers to encourage innovation and growth within the industry.