A joint comment asks for a tighter GENIUS Act fit
Hyperliquid Policy Center (HPC) and venture firm Paradigm filed a joint comment to the US Treasury on Tuesday. They urged FinCEN and the Office of Foreign Assets Control (OFAC) to refine parts of the proposed stablecoin compliance rule that the Treasury says will implement anti-money laundering (AML) and sanctions requirements tied to the GENIUS Act.
The rule focuses on a category called “permitted payment stablecoin issuers” (PPSIs). The proposal frames PPSIs as able to “innovate in payment stablecoins” under an “appropriately tailored” regime to manage illicit-finance risk.
HPC and Paradigm did not oppose the overall framework. Their complaint is scope. They argue that some provisions could expand beyond what the GENIUS Act—and Congress’s intent—supports.
Secondary-market duties: avoid extra diligence and noisy SARs
The comment’s biggest operational point targets how PPSI obligations would work in the secondary market. In those trades, the PPSI does not have a direct relationship with the underlying counterparties.
Paradigm and the Hyperliquid Policy Center say the law expects due diligence from PPSIs on their own customers. They argue Congress did not intend PPSIs to perform additional diligence for secondary-market trading.
To make the case, the firms liken the setup to traditional banking. Once a regulated institution performs KYC when funds enter the system, Paradigm and HPC argue it is not expected to monitor every downstream spending event after cash is withdrawn. By the same logic, they say KYC should sit at the regulated “on-ramps” and “off-ramps,” and compliance costs should concentrate where there is an actual relationship.
They warn that a broader interpretation could push PPSIs into filing huge numbers of low-value suspicious activity reports (SARs). HPC and Paradigm describe these as “noisy” reports with false positives. That, they argue, would impose costs on both PPSIs and FinCEN without producing clear public benefit.
“Lawful orders” definition may pull in the wrong players
A second focus is how the proposed rule defines and assigns obligations around “lawful orders.” In the draft, “lawful order” incorporates the GENIUS Act definition of “person.” That definition then affects who may have to build the technological capabilities that compliance requires.
Paradigm and HPC argue the current drafting could be interpreted too broadly. They say it could pull in developers of distributed ledger protocols, decentralized self-custodial interfaces, and other technologies that Congress excluded from the GENIUS Act’s definition of a “digital asset service provider.”
Their request is a clarification in the final rule that certain entities and technologies fall outside the scope of lawful order requirements.
Validator obligations could “offshore” enforcement burden
The comment goes further on consequences. HPC and Paradigm say that if the clarification does not happen, “lawful order” obligations could be interpreted as applying to essentially every validator on networks that process transactions involving PPSI-issued stablecoins.
They list networks that include Ethereum (ETH), Hyperliquid (HYPE), Solana (SOL), and Layer 2 systems that validate transactions. They argue the predictable outcome would be US validator stakes moving offshore. They also predict US blockbuilding operations would relocate and the US share of the chain validator base would decline.
HPC and Paradigm say those outcomes could undermine GENIUS Act onshoring goals and wider US interests.
What to watch next
This comment is not a rejection of the stablecoin compliance framework. It is a push to constrain which actors bear which obligations, and when. The pressure point is practical: who has to do what, at what stage in a payment flow, and whether that duty maps to an actual customer relationship.
For readers watching stablecoin regulation, the question is not whether AML and sanctions controls should exist. It is whether the final rule draws lines tight enough to avoid turning PPSIs into secondary-market investigators, or turning validators into a backdoor compliance layer.
Key points from the joint comment
| Issue | What HPC and Paradigm ask FinCEN and OFAC to do | Why it matters, per the comment |
|---|---|---|
| PPSI obligations in the secondary market | Clarify that extra diligence is not required for secondary-market trading | Prevents SAR volume from becoming “noisy” with false positives |
| KYC and compliance scope | Focus compliance on regulated on-ramps and off-ramps | Matches a banking analogy where post-withdrawal monitoring is not expected |
| “Lawful order” definition scope | Clarify that certain entities and technologies are excluded | Avoids pulling in protocol developers and self-custodial interface builders |
| Validator impact | Prevent obligations from being interpreted as applying to every validator | Warns US stake and blockbuilding could move offshore |