Paradigm Joins Coalition Comment Letter on Treasury GENIUS Rulemaking
Today, Paradigm joined DeFi Education Fund, Jump Crypto, Solana Policy Institute, and Uniswap Labs in filing a comment letter with the Department of the Treasury regarding its proposal to implement Section 3 of the GENIUS Act. We came together to speak with one voice because Section 3, which sets the rules for who can issue, offer, and sell stablecoins in the U.S., will decide whether the open, decentralized infrastructure those stablecoins increasingly run on can keep being built and used here.
In the version enacted into law, the GENIUS Act reflected a delicate and deliberate balance struck by Congress. On the one hand, it put limits on stablecoin issuers and the intermediaries that distribute them. On the other, it protected distributed ledger protocols, the people who develop them, self-custodial software, validators, and liquidity providers. That line appropriately turns on what a person does, not the technology they use.
Treasury’s proposal is a serious and thoughtful start towards implementing that demarcation. But in several places, it leaves to inference what should be clearly stated in the rule. To address that concern, our letter asks Treasury to make four targeted changes:
First, Treasury should confirm the statutory exclusions in the rule itself, and should make clear who they cover. This is the essence of rulemaking: putting flesh on the skeletal structure Congress created. Instead, the proposal defines “digital asset service provider” only by pointing back to the statute, and never says that the Act’s exclusions apply; we have the bones of a good rule, but no tissue. Treasury should explicitly write those exclusions into the rule, and should make sure that developers, validators, and liquidity providers can find the line by listing examples of conduct that fall on either side.
Second, Treasury should follow Congress’s lead and judge conduct by what a user does. Case in point: the GENIUS Act’s exclusion for liquidity provision covers “a liquidity pool or other similar mechanism” and is not limited to one pool design. But the proposal’s treatment of “market makers” could reach anyone supplying liquidity, whether through a traditional pool, an onchain order book, or a proprietary AMM. That would be at odds with both the letter and spirit of GENIUS, and Treasury should clarify its intended scope.
Third, knowingly participating in an unlawful issuance is a federal felony, punishable by up to five years in prison and $1 million per violation. Yet the proposal’s main limit on that liability is an undefined “close temporal nexus” standard, which appears only in the preamble. Without clarification, that could sweep in unrelated trades just because they happen soon after issuance, while missing later conduct that is tied to issuance. Treasury should replace this amorphous standard with one that instead asks whether a person actually helped the issuer distribute a stablecoin, and should include a clear safe harbor for independent secondary-market activity.
Fourth, Treasury should ensure that the definition of “issue” remains connected to the creation of new rights. Moving a stablecoin from one blockchain to another creates no new rights against the issuer, and Treasury should confirm that bridging, by itself, is not an issuance.
These are not mere abstract debating points. Without clear lines, firms will almost certainly limit liquidity on U.S. venues, and will spend money to address risks the Act already handles at the issuer level. If Treasury does provide those clear lines, firms will have the confidence to adopt and build with stablecoins in the U.S., and Treasury can ensure that the GENIUS Act delivers on the promise Congress intended. This choice is both binary and critical for the future success of the GENIUS regime.
Treasury deserves credit for its careful work implementing a complex statute. We’re glad to file alongside partners from across the ecosystem, and we look forward to continued engagement. You can read the coalition’s full comment letter here.