A joint filing from Paradigm and the Hyperliquid Policy Center urges U.S. authorities to narrow and refine GENIUS Act-based stablecoin rules, arguing current proposals are overly broad and potentially unenforceable on secondary-market smart-contract trades.

They push for a primary-market compliance approach—issuers with customer information—while limiting the secondary-market role so issuers only see wallets and transactions, reducing overreach.

The filing emphasizes balancing strong KYC and monitoring with avoiding liability for downstream transfers and smart-contract-driven activity beyond issuers’ control.

They advocate applying compliance primarily to the primary market, with a limited secondary-market role where issuers can monitor only direct customer interactions.

In their view, this approach mirrors traditional banking: after funds are vetted at on-ramps and off-ramps, ongoing monitoring of every transaction should not be required.

The authors call for a final rule that respects Congress’s intent: focus on PPSIs’ direct relationships with customers while avoiding broad liability for DeFi and decentralized networks.

They compare the GENIUS Act framework to conventional banking practices, arguing that ongoing transaction-by-transaction monitoring is not expected once initial vetting occurs.

The goal is to align rulemaking with Congress’s intent, concentrating obligations on issuers with customer relationships and excluding unworkable secondary-market liability, especially in decentralized networks.

A core concern is that issuers could be held liable for DeFi transactions they cannot control or monitor in real time, particularly on permissionless networks.

They request clearer penalties and a presumption of compliance for issuers with robust sanctions programs to improve regulatory certainty.

They argue PPSIs should perform due diligence on their own customers at entry points but not be required to monitor every secondary-market trade or transaction.

They stress that KYC should target regulated entry points, not every secondary-market transfer, to avoid excessive SARs and costs.