As federal regulators draft stablecoin rules under the 2025 GENIUS Act, banks and DeFi firms are clashing. For readers navigating the digital asset landscape, this makes it vital to understand regulatory liability. Treasury Department rules will determine compliance for all permitted payment stablecoin issuers in the U.S.
Key Takeaways
• The Bank Policy Institute and The Clearing House want anti-money laundering rules to cover secondary market activity.
• Crypto firms Paradigm and the Hyperliquid Policy Center warn this will push regulated tokens out of permissionless DeFi.
• DeFi platforms note that leading stablecoins already use real-time smart contract freeze and blacklist controls.
• Industry observers suggest secondary market compliance should target trade facilitators rather than original issuers.
Banking Groups' Stance
The Bank Policy Institute and The Clearing House want stricter secondary market rules. Current proposals fail to regulate DeFi firms, custodians, and exchanges adequately. According to a June 2026 Bank Policy Institute report titled "Built on Fault Lines," stablecoins account for 84% of illicit crypto transaction volume. This data makes secondary market oversight an urgent priority. Banking groups argue issuers lack visibility into secondary trades, requiring flexible rules that target the highest risks, as detailed in a June 2026 Bank Policy Institute press release, "A More Effective AML Regime Puts Flexibility First."
Crypto Sector Pushback
Paradigm and the Hyperliquid Policy Center argue issuers cannot monitor permissionless secondary markets. In a joint letter to FinCEN and OFAC, they warned these broad rules would push regulated dollar tokens out of DeFi. Making issuers liable for secondary activity contradicts the technical realities of decentralized networks. The crypto sector insists compliance obligations must fall on the entities directly facilitating those trades.
Existing On-Chain Controls
DeFi advocates note that secondary markets already use automated compliance tools. Charles d’Haussy, CEO of the dYdX Foundation, told Decrypt that stablecoin transfers run through master smart contracts. These contracts execute freeze and blacklist controls in real time. On-chain data from the dYdX Foundation shows leading DeFi platforms screen 100% of trades. Thus, primary issuers and apps maintain active oversight of token movements.
The Actual Enforcement Gap
Focusing on primary issuers ignores the true risks of financial crime. Per dYdX CEO d’Haussy in Decrypt, the real challenge is offshore exchanges and unhosted wallets. These entities operate outside the FATF Travel Rule framework. Zeus Research analyst Dominick John told Decrypt that rules must not penalize firms lacking operational control. Targeting non-compliant offshore venues addresses crime without harming compliant DeFi infrastructure.
Institutional Upside
Clear rules for secondary market stablecoin transactions could accelerate institutional crypto adoption. Zeus Research analyst John told Decrypt that clear oversight narrows the gap between traditional finance and crypto markets. Stronger KYC checks and transaction controls increase compliance costs but build institutional trust. This trust is projected to unlock larger institutional capital flows.
Conclusion
Resolving this tension requires regulators to define distinct compliance boundaries matching technical realities. As GENIUS Act implementation approaches, FinCEN and OFAC should target secondary market rules carefully. Obligations must fall exclusively on entities directly controlling those transactions.
