US Treasury Stablecoin Proposal Faces Backlash: Hyperliquid and Paradigm Issue Warnings
A new regulatory framework for stablecoins has drawn a sharp response from industry leaders, signaling a potential showdown over the future of digital finance in America. The Hyperliquid Policy Center (HPC) and venture capital firm Paradigm have submitted a joint comment to the US Treasury, urging FinCEN and OFAC to refine proposed compliance rules that they argue could stifle innovation and inadvertently drive the domestic crypto sector offshore.
The Burden of Secondary Markets
Central to the joint warning is a concern over how "permitted payment stablecoin issuers" (PPSIs) are expected to function within the secondary market. While the groups support the general goal of managing illicit finance risks, they argue that the current proposal places an unrealistic burden on issuers to conduct due diligence on counterparties with whom they have no direct relationship. Drawing an analogy to traditional banking, the firms contend that KYC should occur at regulated "on-ramps" and "off-ramps" rather than requiring issuers to monitor every subsequent peer-to-peer transaction. They warned that forcing this level of oversight would generate a massive volume of "noisy" suspicious activity reports with high false-positive rates, imposing significant costs on both the industry and regulators without providing a clear public benefit.
Protecting Developers and Onshore Interests
The groups also raised alarms regarding the broad definition of "lawful orders," which they fear could pull software developers and network validators into a restrictive compliance net. By potentially applying these rules to decentralized ledger protocols and self-custodial interfaces, the Treasury risks targeting entities that Congress specifically intended to exclude under the GENIUS Act. The HPC and Paradigm cautioned that such a regulatory overreach would likely force US-based validators and block-building operations to relocate to more favorable jurisdictions. This exodus would not only decrease the US share of the global validator base but would also directly undermine the strategic goal of keeping the digital asset ecosystem within American borders.
