Hyperliquid and Paradigm have taken aim at FinCEN's proposed GENIUS Act rule, warning the regulation risks overreaching into secondary markets and threatening the decentralized finance and stablecoin ecosystems in the U.S. The two firms urged the agency to revise the proposal before it moves forward.
Why the rule is drawing fire
The GENIUS Act, put forward by the Financial Crimes Enforcement Network, is designed to tighten oversight of digital asset transactions. But Hyperliquid and Paradigm argue that the current language goes too far. Their key concern: the rule would give FinCEN broad authority over secondary markets — the platforms where users trade tokens after their initial issuance. That, the companies say, would stifle innovation in decentralized finance, or DeFi, and undercut the growth of dollar-backed stablecoins issued by U.S. firms.
A direct challenge to regulatory scope
The two firms didn't mince words in their feedback. They're calling for FinCEN to narrow the definition of what constitutes a regulated transaction in secondary markets. Without those changes, they warn, the GENIUS Act could treat DeFi protocols like traditional broker-dealers. That's a mismatch. DeFi runs on smart contracts and peer-to-peer swaps — no middlemen. Pushing those systems into a conventional regulatory box, the companies argue, would cripple them.
What's at stake for stablecoins
Stablecoins, particularly those pegged to the dollar, have become a key part of the crypto economy. U.S. issuers like Circle and Paxos dominate the market. But the GENIUS Act, as written, could hit secondary trading of these tokens hard. If FinCEN imposes strict reporting requirements on any platform where stablecoins change hands, smaller DeFi exchanges might simply block U.S. users. That would fragment liquidity and push trading offshore — the opposite of what the rule aims to achieve.
The companies' ask
Hyperliquid and Paradigm are not opposing the rule outright. They're asking for targeted revisions. Specifically, they want FinCEN to exempt peer-to-peer transactions and non-custodial activity from the most burdensome compliance demands. They also want the agency to recognize that DeFi protocols can't easily comply with rules designed for centralized businesses that hold customer funds. The goal, they say, is to prevent regulatory overreach without gutting the enforcement tools FinCEN actually needs.
The ball is now in FinCEN's court. The agency will review the comments and decide whether to alter the GENIUS Act before issuing a final version. No timeline has been set, but the pushback from two major crypto players makes clear that the battle over secondary-market rules is just getting started.
