Paradigm and Hyperliquid Challenge GENIUS Act Stablecoin AML Rule

The Groups' Core Concern

Paradigm and Hyperliquid's policy center jointly submitted feedback to the US Treasury opposing language in the proposed GENIUS Act that would extend anti-money-laundering obligations to stablecoin issuers. The groups said the rule as drafted creates ambiguity about who bears compliance responsibility once a stablecoin changes hands — specifically whether DeFi applications, validators, and other infrastructure providers downstream of issuers should be treated as gatekeepers under the Bank Secrecy Act.

What the Rule Would Require

The GENIUS Act framework would require stablecoin issuers to implement know-your-customer and transaction-monitoring controls. Paradigm and Hyperliquid argued that without clearer liability limits, the rule could be interpreted to impose the same duties on every protocol and validator that touches a stablecoin after issuance, effectively making them secondary enforcers. This diffusion of responsibility could chill DeFi development, they said, because infrastructure providers would face legal risk despite having no direct relationship with end users.

Regulatory Context

The GENIUS Act emerged from a 2022 stablecoin working group and reflects bipartisan congressional interest in regulating the $180 billion stablecoin market. The Treasury Department is currently reviewing feedback on how to clarify stablecoin issuer responsibilities without unnecessarily restricting the DeFi ecosystem. Paradigm and Hyperliquid's submission represents one of the first organized pushbacks from major crypto firms on this specific liability-allocation problem.