Key Highlights
A joint letter submitted to the US Treasury's FinCEN and OFAC argues that the draft AML rule under the GENIUS Act could hold stablecoin issuers responsible for smart contract interactions they do not control.
The signatories warn that the rule could extend compliance duties to developers, validators, and other infrastructure builders, potentially chilling US-based DeFi innovation and pushing users toward unregulated offshore stablecoin alternatives.
The letter recommends limiting Suspicious Activity Report requirements to the primary issuance market and calls for clearer safe harbor protections for DeFi developers and decentralized protocol infrastructure.
Hyperliquid Policy Center and Paradigm jointly submitted a letter to the US Treasury on June 9, calling for revisions to a proposed anti-money laundering rule being developed under the GENIUS Act, the stablecoin legislation currently advancing through the US Congress. The letter was addressed to the Financial Crimes Enforcement Network and the Office of Foreign Assets Control, the two Treasury bodies responsible for drafting and enforcing the rule.
The core concern is how the rule would treat DeFi interactions. Under the current draft, stablecoin issuers could be held responsible for transfers that occur via smart contracts in decentralized protocols — transactions they did not initiate, cannot observe in real time, and have no practical mechanism to stop. The signatories argue this effectively treats every step of a DeFi transaction as if the issuer were still providing a service, extending liability far beyond the point of issuance and into protocol layers that operate autonomously. The practical result, they warn, would be a significant reduction in regulated stablecoin usage in DeFi, opening space for unregulated offshore alternatives to grow in their place.
A second concern involves the rule's potential blast radius. Compliance obligations framed around transaction monitoring and suspicious activity reporting could, as written, be interpreted to cover developers who write smart contracts, validators who process transactions, and other infrastructure participants who have no control over how users interact with their code. The letter argues this framing would slow development in the US crypto sector and create legal uncertainty for builders who are not financial intermediaries in any meaningful sense.
The recommended fix is targeted: limit Suspicious Activity Report requirements to the primary market where stablecoins are issued and redeemed, and establish clear safe harbor protections for DeFi developers and decentralized protocols that operate without a central intermediary. The signatories frame this not as an argument against AML compliance, but as a call for rules that distinguish between entities that can realistically bear compliance responsibility and those that cannot. The letter comes at a critical moment as the GENIUS Act moves toward a final Senate vote that would establish the first comprehensive US stablecoin regulatory framework.
