Hyperliquid and Paradigm Warn Treasury AML Draft Could Exclude Stablecoins from DeFi

Hyperliquid Policy Center and crypto investor Paradigm have urged the U.S. Treasury to narrow parts of a proposed anti-money-laundering (AML) rule for stablecoin issuers, warning that the current draft could saddle issuers with responsibilities they cannot realistically enforce — and that could strain DeFi. In a June 9 letter and a joint public comment, the groups applaud Treasury agencies for strengthening AML checks where issuers directly interact with customers. But they argue the same obligations should not automatically extend to transactions that occur outside an issuer’s platform — for example, transfers between wallet addresses, decentralized exchanges and smart contracts. Those secondary-market flows often reveal only wallet addresses, transaction amounts and contract calls, not customer identities or issuer control, they note. The draft rule, issued by FinCEN and the Office of Foreign Assets Control in April to implement the GENIUS Act, would require permitted stablecoin issuers to maintain AML and sanctions programs and retention systems capable of blocking, freezing or rejecting transactions that violate U.S. law. Hyperliquid and Paradigm say those blocking-and-control duties need clearer limits when tokens circulate beyond an issuer’s custody or service. Left vague, the groups warn, issuers could face “strict liability for transactions they cannot meaningfully police.” That legal exposure, the letter argues, could push regulated stablecoin issuance into permissioned environments where participants undergo identity checks — effectively pulling regulated dollar-pegged stablecoins out of open DeFi rails and creating room for offshore alternatives. Issuers, fearing sanctions risk, might decline to support open networks or integrate with permissionless smart contracts, the filing cautions. The comment comes as Congress continues work on the CLARITY Act, a separate Senate proposal that would carve out protections for open-source developers and service providers who do not control customer funds. Solana Institute CEO Kristin Smith and more than 200 industry groups have urged lawmakers to preserve such protections as the Senate Banking Committee advances the bill; a full Senate vote has not yet occurred. The GENIUS Act became law in July 2025 and set a federal framework for payment stablecoins. The Treasury’s implementing rules are still in draft form and may change after public comments. As regulators refine how AML and sanctions requirements apply across primary issuance and secondary, permissionless markets, the balance they strike will shape whether regulated stablecoins remain integrated with DeFi or drift toward closed, permissioned systems.