Two organizations in the digital asset sector have urged the U.S. Treasury to revise a proposed anti-money laundering rule that would expand oversight of stablecoin issuers, warning the current draft could expose firms to liability for transactions beyond their control.
In a joint submission, the Hyperliquid Policy Center (HPC) and Paradigm argued that the proposal—introduced by the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) in April—extends compliance obligations into areas where issuers lack both authority and visibility.
Concerns over liability in secondary markets
At the center of the dispute is how the rule applies Bank Secrecy Act requirements to stablecoin activity. The proposal would treat issuers similarly to financial institutions, including in decentralized environments.
HPC and Paradigm said this approach fails to distinguish between primary and secondary markets. In primary markets, issuers interact directly with users to mint or redeem stablecoins and can conduct compliance checks. In secondary markets, transactions occur across peer-to-peer networks or decentralized platforms where user identities are often unknown.
The groups warned that holding issuers responsible for those downstream activities is comparable to holding a bank accountable for how cash is used after it is withdrawn from an ATM.
Risk of pushing activity offshore
The letter cautioned that extending liability to smart contract interactions could effectively force U.S.-regulated stablecoins off open blockchain systems. That, in turn, could shift activity toward offshore issuers operating under lighter regulatory frameworks.
Such an outcome could reshape a fast-growing market. Stablecoin capitalization exceeded $321 billion in April 2026, while transaction volume reached $4.5 trillion in the first quarter alone. The groups argued that overly broad rules risk diverting a significant share of that activity away from U.S.-based firms.
Calls for narrower definitions and targeted enforcement
To address these concerns, HPC and Paradigm recommended refining the definition of “payment stablecoin-related activity” and revisiting how OFAC applies sanctions requirements to blockchain-based systems. They emphasized that compliance obligations should focus only on areas where monitoring is feasible.
Their submission also stressed that issuers should not be held accountable for transactions occurring on decentralized infrastructure they do not control.
Broader regulatory context
The proposal stems from the GENIUS Act, passed last year to integrate stablecoin issuers into the U.S. financial system. Implementation is now underway through a rulemaking process that will determine how these standards are applied.
The public comment period for the Treasury’s proposal has now closed, with responses from multiple industry participants. Other regulators are also shaping policy in parallel, including the Federal Deposit Insurance Corporation, which has a separate consultation on stablecoin compliance open until August 4, 2026.
State-level regulators are weighing in as well, with the Conference of State Bank Supervisors advocating for flexibility beyond federal baseline rules.
HPC background
HPC, formed in February with backing from the Hyperliquid Foundation, received roughly $29 million in digital tokens to support its policy work. The organization is led by Chervinsky, who oversees its efforts on decentralized finance regulation.
For deeper context on evolving U.S. oversight of stablecoins, explore why the GENIUS Act could be the turning point for stablecoins.
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