Hyperliquid's backed advocacy efforts and venture capital firm Paradigm jointly submitted comments opposing a proposed US anti-money laundering rule that would restrict decentralized stablecoin activity on public blockchains. The two organizations argue the regulation goes too far in limiting financial innovation while failing to achieve its stated AML objectives.
The proposed rule, emerging from US financial regulators, targets decentralized stablecoins operating on transparent blockchain networks. Hyperliquid and Paradigm contend that such restrictions would push stablecoin activity offshore to less regulated jurisdictions, actually undermining AML compliance rather than strengthening it. The companies note that on-chain transparency provides regulators with better visibility into transaction flows than traditional off-chain systems.
Paradigm, a major crypto-focused venture firm holding positions in decentralized finance protocols and blockchain infrastructure, framed the rule as counterproductive to sound policy. The firm argues that preventing domestic stablecoin usage on public chains creates regulatory arbitrage opportunities, where users migrate to foreign platforms with weaker oversight. Hyperliquid, a decentralized derivatives exchange, supports this position from the operational perspective of a platform relying on stablecoin liquidity.
The advocacy effort reflects growing concern across the crypto industry about prescriptive regulations that target specific technology implementations rather than actual money laundering behavior. Both entities emphasize that decentralized stablecoins like USDC and DAI already operate under compliance frameworks, with issuers subject to money transmission regulations. They argue the proposed rule treats these instruments as inherently problematic rather than evaluating risk based on actual usage patterns.
The comments arrive as US regulators continue drafting rules for digital asset markets under existing AML authority. The Financial Action Task Force, an international AML standard-setting body, has also been developing guidance for decentralized finance that nations must incorporate into domestic frameworks. This regulatory environment creates pressure on US policymakers to act, but Hyperliquid and Paradigm's submission suggests the crypto industry will mount coordinated legal and policy resistance to overly broad restrictions.
The stakes extend beyond stablecoins. Restrictions on decentralized stablecoin usage could cascade to limit other on-chain financial activity, from lending protocols to derivatives trading. That amplifies industry opposition, uniting exchanges, protocols, and investors around the common position that regulation should focus on behavior rather than technology.