Paradigm Files Comment Letter on FinCEN and OFAC’s GENIUS Act Rulemaking

Today, joined by the Hyperliquid Policy Center, Paradigm filed a comment letter in response to FinCEN and OFAC’s proposed anti-money laundering, counterterrorism, and sanctions framework for stablecoin issuers under the GENIUS Act. We support much of the framework, including FinCEN’s decision to draw a hard line between primary and secondary market obligations and to refrain from imposing mandatory SAR requirements on secondary market transfers.

But our letter addresses several areas where the proposal, as drafted, creates legal uncertainty for protocol developers and imposes obligations beyond what the GENIUS Act permits. In particular, it is critical that FinCEN and OFAC not overly extend regulatory requirements to entities that do not themselves have control or custody of assets.

That means that FinCEN’s decision not to require SARs on secondary market transfers correctly accommodates the realities of permissionless blockchains, and we strongly urge FinCEN not to revisit that decision. But it also means that FinCEN has a responsibility to reflect those realities in other contexts, including the “conducted through” safe harbor and the Travel Rule.

It means FinCEN should confirm that smart-contract-based controls like programmable blacklists and transfer restrictions enforced at the token level satisfy the block/freeze/reject technical capability requirement, and not require that additional processes be unnecessarily and duplicatively added.

It means FinCEN should clarify that lawful order compliance obligations run only to the PPSI and not to validators, chain operators, or other participants Congress expressly excluded from the GENIUS Act’s regulatory perimeter.

Finally, and perhaps most importantly, it means OFAC should reconsider its position that merely developing a smart contract constitutes providing a service to every person who interacts with it on the secondary market, which conflicts both with FinCEN and court precedent, and would chill USD-denominated stablecoin deployment.

Regulation of crypto to protect against misuse by criminals and terrorists is important, but we cannot place undue burdens on law-abiding developers, firms, and ordinary users out of excess caution or fear. To fail to protect people’s legal rights against encroachment by the government would go against the very ethos and raison d’etre of crypto, and we will always speak against and resist such efforts.

You can read Paradigm and HPC’s full comment letter here.