Summary
- Paradigm and the Hyperliquid Policy Center have raised concerns over proposed AML and sanctions regulations affecting stablecoin issuers.
- The organizations cautioned that categorizing secondary market transactions as issuer activities could drive regulated stablecoins away from decentralized finance (DeFi).
- Industry experts noted that overly broad regulations might lead to confusion for both issuers and infrastructure providers, as reported by Decrypt.
The cryptocurrency investment firm Paradigm, alongside the Hyperliquid Policy Center, has alerted U.S. regulatory bodies about the potential consequences of proposed anti-money laundering (AML) regulations for stablecoin issuers. They argue that if issuers are held accountable for transactions in the secondary market, it could deter the use of regulated dollar-backed tokens in permissionless DeFi.
In a letter submitted on Tuesday to FinCEN and OFAC, the two organizations opposed a proposed regulation concerning the GENIUS Act’s AML and sanctions mandates for approved payment stablecoin issuers.
We have submitted comments to @paradigm regarding the proposed regulations by @USTreasury for stablecoin issuers.
U.S.-regulated stablecoins facilitate billions in daily trading, lending, and settlement.
Our comments provide recommendations to maintain their essential role in on-chain markets. https://t.co/tFJhhkdpq5
— Hyperliquid Policy Center (@HyperliquidPC) June 9, 2026
The groups expressed that such regulations could create a “chilling effect,” dissuading issuers from engaging with permissionless blockchains and potentially leading to a withdrawal of U.S.-regulated stablecoins from the DeFi space.
They contend that regulators need to distinguish between primary issuance, where issuers maintain direct customer relationships, and secondary market transactions, where stablecoins circulate through wallets, DeFi applications, and validators beyond the issuer's immediate oversight.
The groups emphasized that a wallet address that merely holds or transfers a stablecoin should not be classified as an issuer's customer. Additionally, they argued that developers, protocol operators, and validators should not be subjected to issuer-level obligations if they lack a direct relationship with the issuer.
Paradigm and the Hyperliquid Policy Center asserted that enforcing issuer-like rules on secondary market transactions would provide minimal benefit to regulators. Instead, they warned it could lead to a surge of ineffective, low-value suspicious activity reports.
Monitoring Stablecoins
The core issue revolves around how regulators can oversee stablecoin usage without transforming nearly every aspect of the market into a regulated intermediary.
Regulators are keen to ensure that stablecoins do not become overlooked in terms of sanctions enforcement and illicit finance as they expand as global payment mechanisms, according to Matthew Pinnock, COO of Altura DeFi, who spoke with Decrypt.
For stablecoins to play a central role in dollar-based digital finance, regulators require assurance that issuers can identify their customers, block sanctioned individuals, and collaborate with law enforcement when necessary, Pinnock noted.
However, achieving such confidence may be challenging, as issuers often lack direct ties to users once stablecoins are transferred between self-custodied wallets. Pinnock likened this to asking a bank to monitor “every cash transaction after money leaves an ATM.”
Siwon Huh, an analyst at crypto research firm Four Pillars, expressed concerns that a broad exemption for secondary markets could create enforcement loopholes. He pointed out that sanctioned entities like North Korea have previously utilized dollar stablecoins as “a store of value and a means of moving money,” cautioning that if issuers are not accountable after issuing a coin, their motivation to invest in prevention technologies may diminish.
Ambiguous regulations are particularly problematic for validators, as they may be interpreted to encompass infrastructure operators on networks like Ethereum, Solana, and Hyperliquid, which could drive U.S.-based staking and infrastructure development overseas.
Marcos Viriato, CEO and co-founder of Parfin, warned that excessive regulations could blur the distinction between firms managing customer relationships and those merely providing infrastructure. He stated that if the obligations become overly extensive, companies may find it difficult to apply them uniformly, stressing that effective regulations should enhance compliance without introducing “unnecessary operational complexity.”