Crypto investment firm Paradigm and the Hyperliquid Policy Center have challenged proposed U.S. anti-money laundering (AML) and sanctions rules for stablecoin issuers. In a letter to FinCEN and OFAC, the groups argued that treating secondary market activity the same as primary issuance could create a 'chilling effect,' discouraging issuers from deploying on permissionless blockchains and potentially pulling U.S.-regulated stablecoins out of DeFi. They emphasized that wallet addresses simply holding or transferring stablecoins should not be considered issuer customers, and developers, protocol operators, and validators with no direct issuer relationship should be exempt from issuer-style obligations. The industry observers noted that such broad rules could generate 'an avalanche of noisy, false-positive-laden, low-value SARs.' While regulators aim to prevent stablecoins from becoming a 'blind spot for sanctions enforcement,' enforcement challenges arise because issuers often lack direct relationships with users after coins move into self-custodied wallets. Some analysts caution that a broad secondary-market carveout could create enforcement gaps, as sanctioned entities like North Korea have used stablecoins for money movement. Others warn that unclear rules for validators on networks like Ethereum, Solana, and Hyperliquid could push U.S.-based staking and infrastructure offshore, blurring the line between customer-facing firms and infrastructure providers.

Key facts

• Paradigm and Hyperlipid Policy Center oppose proposed AML rules for stablecoin issuers.
• They warn that secondary market liability could push regulated stablecoins out of DeFi.
• Wallet holders and validators should not be treated as issuer customers, groups argue.
• Broad rules could generate false-positive-laden suspicious activity reports.
• Analysts caution that enforcement gaps or offshore migration of infrastructure may result.

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