Paradigm, Hyperliquid Policy Center urge narrower FinCEN, OFAC stablecoin rule

Paradigm and the Hyperliquid Policy Center urged the U.S. Treasury to narrow parts of an April proposal by FinCEN and OFAC that would treat stablecoin issuers as financial institutions, arguing the rule should focus compliance on primary-market customer checks rather than secondary-market activity. In a joint comment, the groups said they support anti-money-laundering and sanctions compliance for permitted payment stablecoin issuers, or PPSIs, but warned that extending liability into secondary-market smart-contract use could push regulated stablecoins out of decentralized finance. Their main concern is that issuers typically have direct relationships with customers in the primary market, where KYC obligations are workable, but not with counterparties in downstream transfers or trades. They said Congress did not intend for issuers to monitor every secondary-market transaction and argued that broad lawful-order provisions could also sweep in validators, developers and self-custodial interfaces that were not meant to be covered under the GENIUS Act framework. The groups warned that an expansive reading could burden networks including Ethereum, Hyperliquid, Solana and Layer 2 systems with obligations tied to PPSI-issued stablecoins, potentially driving validator stake, blockbuilding and other activity offshore while making regulated stablecoins less viable in DeFi.