Hyperliquid and Paradigm push Treasury to shield DEFI in stablecoin rules

A joint comment on the final day

On the last day of the public comment window, @HyperliquidPC, the policy arm of @HyperliquidX, and @paradigm filed a joint comment on the US Treasury's proposed rules under the GENIUS Act. The two broadly backed the framework but flagged a specific risk they say could damage open, permissionless networks.

Their concern centres on how OFAC's sanctions approach is written. As currently drafted, they argue the rules could hold stablecoin issuers liable for downstream activity in DeFi protocols and peer-to-peer transactions that the issuers have no practical ability to monitor or control. Left unchanged, they warn, that exposure would push US-regulated stablecoins away from open networks and into permissioned systems.

What the Treasury rule actually proposes

On April 8, 2026, Treasury's FinCEN and OFAC issued a joint proposed rule to implement key provisions of the GENIUS Act. The proposal would bring permitted payment stablecoin issuers (PPSIs) squarely within the US anti-money laundering and sanctions compliance framework, treating them as financial institutions for the purpose of the Bank Secrecy Act.

Under the proposed rule, PPSIs would be required to have technical capabilities, policies, and procedures to block, freeze, and reject impermissible transactions, including those occurring on the secondary market via smart contracts. The GENIUS Act's requirement that PPSIs maintain an "effective sanctions compliance program" represents the first time federal law has explicitly mandated such a program for any category of US persons.

The proposal is grounded in national security concerns. Treasury has emphasised that while payment stablecoins may transform payment systems, the scale and centrality of the US financial system make these instruments an attractive target for illicit finance.

Hyperliquid's policy arm and Paradigm do not dispute that goal. Their argument is narrower: that compliance obligations should be tied to issuers' direct customers, not extended to developers and protocols that Congress explicitly excluded from the definition of a permitted payment stablecoin issuer. Stretching liability that far, they contend, would create an unworkable compliance burden and produce the opposite of the intended effect, driving stablecoin activity offshore or into less transparent systems.

For DeFi, regulated stablecoins remain the dominant collateral and settlement asset, but protocols that interact with PPSIs will face new compliance friction, particularly around the OFAC-freezing capabilities the FinCEN/OFAC rule contemplates.

The public comment period closed on June 9, 2026. Treasury and OFAC will now review submissions before moving toward a final rule.

Sources:
US Treasury: Proposed Rule to Implement the GENIUS Act's Illicit Finance Requirements
Mayer Brown: AML and Sanctions Framework for Stablecoin Issuers Under the GENIUS Act
National Law Review: Treasury Advances Stablecoins Under the GENIUS Act