Treasury Stablecoin Proposal Draws Major Warning From Hyperliquid Policy Center–Here’s Why
The Hyperliquid Policy Center and Paradigm submitted joint comments to the US Treasury opposing overly broad compliance requirements in the proposed GENIUS Act stablecoin framework. They warned that requiring permitted payment stablecoin issuers to monitor secondary market transactions and imposing lawful order obligations on validators could drive US crypto infrastructure offshore.
The Treasury's proposed stablecoin compliance rule attempts to balance innovation with anti-money laundering and sanctions enforcement. However, Paradigm and the Hyperliquid Policy Center identified critical overreach that could undermine the legislation's core objectives. Their primary concern centers on secondary market surveillance—requiring issuers to conduct ongoing due diligence on peer-to-peer transfers far exceeds traditional banking standards, where institutions monitor only the on-ramp and off-ramp of funds into regulated systems. This distinction matters because stablecoins, like cash, should circulate freely once they enter the legitimate economy.
The more structurally damaging issue involves "lawful order" obligations. As currently drafted, the rule could obligate every validator across Ethereum, Solana, and other networks to implement compliance infrastructure simply for processing transactions involving Treasury-approved stablecoins. This creates perverse incentives: US-based validators would face prohibitive compliance costs while foreign validators operate freely, accelerating the offshore migration of American blockchain infrastructure and validator stake. The firms argue this outcome directly contradicts Congress's onshoring intentions.
The comments expose a fundamental tension in crypto regulation—how to enforce compliance without destroying the decentralized architecture that gives these systems their value proposition. The Treasury faces pressure to satisfy both financial crime fighters and industry stakeholders, but poorly calibrated rules often achieve neither goal while driving economic activity abroad. The final rule's language around which entities qualify as digital asset service providers will determine whether US blockchain development thrives or relocates.
- →Paradigm and Hyperliquid Policy Center warn that secondary market surveillance requirements exceed traditional banking standards and create costly false positives
- →Overly broad lawful order obligations could force every blockchain validator to implement compliance infrastructure, moving US validator stake offshore
- →The proposed rule risks undermining the GENIUS Act's own onshoring objectives by making US blockchain infrastructure economically unviable
- →Clearer regulatory boundaries are needed to distinguish between regulated payment stablecoin issuers and decentralized protocol developers
- →Final rule language on digital asset service provider definitions will critically determine whether US crypto development infrastructure remains competitive