Hyperliquid and Paradigm warn GENIUS Act rules could harm DeFi stability

The Hyperliquid Policy Center and Paradigm have filed a joint comment with the US Treasury, expressing concerns over the proposed anti-money laundering rules for stablecoin issuers. The groups argue that the strict regulations could lead to a shift in regulated dollar stablecoins away from decentralized finance (DeFi) towards permissioned or offshore alternatives.

The proposal requires stablecoin issuers to maintain AML programs and block transactions violating US law. However, Hyperliquid and Paradigm warn that such an approach could place duties on issuers for transactions they cannot control. The groups suggest that the same principle guiding AML requirements in primary-market activity should also apply to secondary markets.

The comment highlights the challenges of applying strict regulations to decentralized systems, where issuers may not have direct control over transactions or users. Hyperliquid and Paradigm argue that such exposure could discourage issuers from supporting open networks, potentially leading to a loss of regulated stablecoins in DeFi.