Paradigm and the Hyperliquid Policy Center have submitted formal pushback against the GENIUS Act's proposed anti-money laundering (AML) rules for stablecoin issuers. The two organizations argue that existing language imposes unclear and potentially unlimited liability on stablecoin issuers, DeFi applications, and validators after tokens transfer between parties.
The core complaint centers on regulatory overreach. Paradigm and Hyperliquid Policy Center contend that issuers cannot reasonably monitor or control where stablecoins flow once they enter circulation. The groups specifically demand clearer liability thresholds and boundaries defining when intermediaries bear responsibility for downstream transaction compliance.
The GENIUS Act, formally titled the Generating Reliable Evident Needed Intelligence and Utility of Services (GENIUS) Act, represents one of the most comprehensive attempts to regulate stablecoins at the federal level. The bill targets systemic risks from dollar-backed digital currencies but, according to the policy groups, does so through language that casts too wide a net.
Under the proposed rules, stablecoin issuers face potential liability for AML violations tied to their tokens regardless of where those tokens end up. This extends liability concerns to DeFi protocols and node operators who have minimal ability to verify transaction counterparties. Validators running blockchain infrastructure would face the same exposure, creating a chilling effect on protocol development.
Paradigm, a prominent venture capital firm focused on blockchain infrastructure and digital assets, views the language as incompatible with decentralized systems. The Hyperliquid Policy Center, which advocates for policy frameworks supporting decentralized finance, argues the rule conflates issuer responsibility with transport mechanism responsibility in ways that don't map to how blockchain networks function.
The groups propose carving out specific safe harbors. These would exempt entities from AML liability once stablecoins have transferred beyond their initial issuance, placing compliance burden solely on endpoint users and regulated institutions that interface with traditional banking. This aligns with existing FinCEN guidance on cryptocurrency transactions, which distinguishes between originators and intermediaries based on control and knowledge.
Industry observers expect Congress to weigh these concerns as the GENIUS Act moves through legislative process. Stablecoin issuers including Circle and Paxos, along with major DeFi protocols, likely face pressure to submit similar feedback. The amendment battle sets up a broader fight over how Washington regulates blockchain infrastructure without imposing impossible compliance burdens on decentralized systems where control is distributed.
The timing matters. As stablecoin adoption accelerates and tokenization expands into traditional finance, regulatory clarity becomes essential for institutional participation. Overly broad AML rules could push stablecoin issuance offshore or slow development of dollar-backed digital currencies in the United States.