The Hyperliquid Coverage Middle (HPC), along with enterprise capital agency Paradigm, submitted a joint remark to the US Treasury on Tuesday, urging the Monetary Crimes Enforcement Community (FinCEN) and the Workplace of International Property Management (OFAC) to refine components of its proposed stablecoin compliance rule tied to the GENIUS Act.
The rule is meant to implement anti-money laundering (AML) and sanctions necessities for “permitted fee stablecoin issuers” (PPSIs), a class the proposal says ought to be capable to innovate in fee stablecoins whereas working underneath an “appropriately tailor-made” regime designed to handle illicit-finance threat.
Narrower Compliance, Much less Burden
Whereas they didn’t oppose the general purpose of the framework, Paradigm and the Hyperliquid Coverage Middle argued that key components of the proposal want clearer boundaries—particularly the place compliance obligations could unintentionally spill over into areas that don’t match the GENIUS Act’s construction or Congress’s intent.
A serious focus of the feedback is how permitted fee stablecoin issuers’ duties ought to work within the secondary market, the place PPSIs would not have a direct relationship with the underlying counterparties.
Of their view, the legislation makes clear Congress anticipated due diligence by PPSIs on their very own prospects, however didn’t intend a requirement for PPSIs to conduct further diligence for buying and selling that happens within the secondary market.
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The corporations drew an analogy to conventional banking, saying that after regulated establishments run KYC when funds enter the system, they don’t seem to be anticipated to observe each spending occasion after money is withdrawn.
In the identical manner, Paradigm and the Hyperliquid Coverage Middle argued that decentralized peer-to-peer transfers of stablecoins—and different digital belongings—ought to usually contain KYC solely on the regulated on-ramps and off-ramps, with compliance prices targeted the place the connection exists.
They warned {that a} opposite method might drive necessities for PPSIs to file giant numbers of low-value suspicious exercise reviews (SARs), creating “noisy” reviews with false positives that might impose prices on each PPSIs and FinCEN with out clear public profit.
Hyperliquid Coverage Middle Urges Clarification
The remark additionally addresses the best way the proposed rule defines and assigns obligations associated to “lawful orders.” Paradigm and the Hyperliquid Coverage Middle stated the proposal defines “lawful order” by incorporating the GENIUS Act definition of “individual,” which in flip determines who could need to construct technological capabilities.
They argued that, as drafted, the proposed rule could possibly be interpreted too broadly, probably pulling in builders of distributed ledger protocols, decentralized self-custodial interfaces, and different applied sciences that Congress excluded from the GENIUS Act’s definition of a “digital asset service supplier.”
The corporations stated this end result wouldn’t align with Congress’s intent, they usually beneficial a clarification within the last rule to explicitly state that sure entities and applied sciences usually are not included inside the scope of lawful order necessities.
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In accordance with Paradigm and the Hyperliquid Coverage Middle, failing to make that clarification might unintentionally impose lawful order obligations on each validator on networks like Ethereum (ETH), Hyperliquid (HYPE), Solana (SOL), and Layer 2 methods that validate transactions involving PPSI-issued stablecoins.
They argued the predictable consequence could be that US validator stakes would transfer offshore, US blockbuilding operations would relocate, and the US share of the chain validator base would decline—outcomes they stated would undermine each the GENIUS Act’s onshoring targets and broader US pursuits.
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