Hyperliquid and Paradigm warn GENIUS Act rule could hurt DeFi

Hyperliquid and Paradigm have submitted concerns to the U.S. Treasury regarding the GENIUS Act's anti-money laundering rules, warning that overly strict regulations could discourage regulated stablecoin issuers from operating on open DeFi networks. The firms argue the proposed rules need narrowing to maintain DeFi's accessibility while still meeting compliance requirements.

Hyperliquid and Paradigm's intervention in the GENIUS Act regulatory process highlights a critical tension between compliance frameworks and DeFi's open-access architecture. The two prominent crypto entities are concerned that broad AML rules could create compliance costs so prohibitive that stablecoin issuers retreat to permissioned or traditional finance channels, effectively fragmenting the DeFi ecosystem.

This dispute emerges as regulators worldwide attempt to apply traditional financial oversight to decentralized protocols. The GENIUS Act represents legislative efforts to establish clearer guardrails for digital assets, but its implementation details significantly impact whether DeFi remains a borderless, permissionless network or becomes gated through compliance checkpoints. Hyperliquid and Paradigm argue that narrower rules—likely targeting high-risk activities rather than all on-chain interactions—would balance regulatory objectives with innovation.

The regulatory pressure on stablecoins specifically matters because they serve as the primary medium of exchange within DeFi ecosystems. If regulations push major stablecoin issuers away from public blockchains, liquidity fragmentation could increase transaction costs and reduce DeFi's competitive advantage over traditional finance. This could also accelerate the creation of compliant private blockchain alternatives, undermining decentralization principles.

The outcome of Treasury's GENIUS Act rule-making will likely set precedent for how other jurisdictions approach DeFi regulation. If the U.S. opts for broad restrictions, other nations may follow suit, while narrower rules could establish a model allowing regulated participation within open networks. The crypto industry will closely monitor whether Treasury incorporates these industry concerns into final guidance.

• →Hyperliquid and Paradigm urged Treasury to narrow GENIUS Act AML rules to prevent stablecoins from abandoning open DeFi networks
• →Overly broad compliance requirements could push regulated stablecoins toward permissioned or traditional finance alternatives
• →The dispute reflects ongoing tension between regulatory compliance and DeFi's permissionless design principles
• →Stablecoin regulatory treatment directly impacts liquidity and efficiency across DeFi protocols
• →Treasury's final GENIUS Act rules could establish precedent for global DeFi regulation frameworks