Treasury’s GENIUS rule debate is becoming a test of how far regulated stablecoins can reach on open networks

The latest round of comments on the Treasury Department’s proposed GENIUS Act implementation rule has sharpened a question that sits at the center of the next stablecoin market structure debate: where should compliance responsibility stop when a regulated dollar token moves beyond issuance and redemption into open blockchain markets? A new comment letter from Anchorage Digital backs the broad direction of the proposal from the Treasury’s Financial Crimes Enforcement Network and the Office of Foreign Assets Control, but asks for tighter definitions around sanctions exposure, enterprise-wide AML expectations and correspondent-account treatment. Taken together with a separate joint submission from the Hyperliquid Policy Center and Paradigm, the message from industry is becoming clearer. The market can live with regulated issuer obligations in the primary market; it is much less comfortable with compliance theories that follow a token into every downstream transaction.

The underlying rule is not a small one. Treasury’s proposal, published in April, would treat permitted payment stablecoin issuers as financial institutions for Bank Secrecy Act purposes and require them to maintain anti-money laundering and sanctions compliance programs. Federal Register data shows the comment period closed on June 9 after drawing hundreds of comments, a sign that the rule is already being treated as foundational infrastructure for dollar-backed tokens rather than as a niche crypto policy file. Stablecoins are no longer only a trading tool. They increasingly sit inside exchange settlement, merchant experiments, cross-border payments and treasury workflows, so the boundaries of issuer responsibility will shape where regulated supply can actually circulate.

Anchorage’s position is notable because it does not ask regulators to abandon the compliance architecture. The firm says FinCEN and OFAC largely have the right starting point by aligning core AML duties with the primary market, where issuers have direct customer relationships and visibility into minting, redemption and custody activity. Its push is instead for precision. Anchorage argues that a workable final rule should confirm that issuers are not subject to strict liability for failing to identify sanctioned actors transacting through secondary-market smart contract activity that the issuer cannot independently see in customer-level detail. It also calls for clarity on how enterprise-wide AML obligations apply and how issuer relationships should be treated under correspondent-account concepts that were not designed with blockchain token rails in mind.

The Hyperliquid Policy Center and Paradigm letter points to the same fault line from a more permissionless-markets angle. Their argument is that FinCEN’s distinction between primary-market activity and secondary-market activity is directionally sound, but OFAC’s treatment of smart-contract interactions risks pulling secondary-market behavior back inside the issuer’s compliance perimeter. In their framing, that would impose sanctions risk on activity where an issuer may know little more than wallet addresses and transaction amounts. The letter goes further by warning that if U.S.-regulated issuers are asked to police downstream wallet-to-wallet and protocol activity they cannot meaningfully control, they will have a rational incentive to confine their tokens to permissioned environments. That would not just change compliance costs; it could reshape which forms of stablecoin liquidity remain competitive in DeFi and other open-network contexts.

For RWA markets, that distinction matters more than it might appear at first glance. Tokenized treasuries, credit instruments and fund wrappers all depend on a settlement asset that can move reliably between investors, venues and service providers. If regulated stablecoins become easy to issue but hard to use outside tightly controlled channels, the practical effect is a narrower addressable market for onchain finance. U.S. policymakers may still get better oversight at the issuer level, but they may also tilt open-network activity toward offshore alternatives or non-dollar liquidity pools. That is why the current comment fight is best understood not as a narrow legal drafting exercise, but as a design decision about the market geography of tokenized dollars.

The rulemaking also highlights a broader truth about institutional stablecoin adoption. Compliance does not only determine whether a token can be launched; it determines whether the token can become operational infrastructure for third-party products. Large financial institutions are unlikely to build lasting tokenized cash or securities workflows on top of standards that leave secondary-market liability unresolved. They need predictable boundaries around suspicious activity reporting, customer due diligence, sanctions screening and the treatment of protocol-mediated activity. The primary-market-versus-secondary-market split is therefore becoming one of the most consequential architecture choices in the U.S. stablecoin stack. It decides whether regulated issuers can support open interoperability, or whether the safest route will be heavily gated distribution with much smaller network effects.

That does not mean the issuers’ preferred outcome is guaranteed, or even that regulators will see the balance the same way. Treasury and OFAC are trying to implement a law that explicitly raises expectations for blocking, freezing and rejecting unlawful activity tied to permitted payment stablecoins. Regulators will be wary of leaving obvious gaps that could let illicit finance migrate into tokenized-dollar networks under the cover of technical complexity. At the same time, the comment letters expose the operational limit of trying to apply bank-style obligations to environments where transfers can occur peer to peer, through smart contracts and across composable protocols without a traditional intermediary controlling each step. The final rule will have to decide how much of that complexity the issuer is expected to absorb.

The most important implication is strategic. If the agencies preserve a primary-market-centered framework and narrow secondary-market liability to what issuers can realistically observe and control, regulated U.S. stablecoins could become more usable across the wider RWA economy, including tokenized funds, treasury products and machine-driven payment workflows. If they do not, the market may still grow, but in a more segmented form where the most compliant tokens stay inside walled gardens while less regulated liquidity captures the open internet edge. That is why this comment cycle qualifies as a real RWA story. It is not simply about legal language. It is about whether the next generation of tokenized dollars will function as broad settlement infrastructure or as narrowly bounded financial products.