Hyperliquid Backers and Paradigm Push US to Reconsider Proposed Crypto AML Rules

TL;DR: 

• The firm Paradigm and the group Hyperliquid Policy Center formally submitted a joint objection letter on Tuesday, June 9, 2026. 
• The document responds to the regulatory proposal by FinCEN and OFAC that seeks to implement the guidelines of the GENIUS Act approved in 2025. 
• The Hyperliquid Foundation funded the creation of its public policy center in February 2026 through a $29 million donation in HYPE tokens.

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This Tuesday, Paradigm and the advocacy group Hyperliquid Policy Center sent a joint letter to the United States Treasury. In the missive, the entities request to modify the proposal on Crypto AML Rules that seeks to regulate the secondary stablecoin market. According to the issued document, the current draft would force issuers to assume strict liability over operations that escape their technical control.

The impact of the GENIUS Act on stablecoins

The origin of the regulatory dispute dates back to the joint proposal presented in April 2026 by the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC). Both agencies designed a regulation to operationalize the GENIUS Act, legislation approved last year with the support of Donald Trump’s administration. The official texts determine that companies issuing payment stablecoins must receive the same legal treatment as traditional financial institutions under the Bank Secrecy Act.

In the letter, the signatories expressed their general support for compliance obligations to focus primarily on the primary market. In the primary market, issuers maintain a direct Know Your Customer (KYC) relationship. However, both organizations emphasized that extending these demands to the secondary market through smart contracts is unfeasible, given that in decentralized environments, issuers only see wallet addresses and transaction amounts.

The risk of migration toward unregulated markets

Paradigm and Hyperliquid Policy Center argue that imposing restrictive rules on public networks will generate adverse incentives for companies in the sector. According to Paradigm’s report, issuers regulated in U.S. territory will prefer to deploy their infrastructures exclusively in private and permissioned environments if they face sanctions for secondary transactions they cannot effectively monitor. The firm’s interpretation indicates that this scenario would cause an operational void in the DeFi ecosystem. According to the current trend described in the letter, this space would be immediately occupied by unregulated alternatives issued in offshore jurisdictions.

With the aim of correcting these effects, the group led by CEO Jake Chervinsky proposed specific solutions to the Treasury. Among the requests, highlighting narrowing the scope of the definition of “payment stablecoin-related activity” and reviewing the treatment that OFAC grants to automatic interactions of smart contracts.

The FinCEN and OFAC proposal contemplates an implementation period before the GENIUS Act definitively enters into force. The regulatory deadline for receiving public comments for this process formally concluded this Tuesday, consolidating the delivery of this letter as one of the definitive institutional milestones before the drafting of the final regulatory framework.