Blockchain Association’s Communication with U.S. Treasury
The Blockchain Association has formally communicated with the U.S. Treasury by submitting a comprehensive 26-page letter that emphasizes the need for clarity regarding the implementation of the GENIUS Act, particularly in relation to decentralized financial platforms, stablecoin trading entities, and foreign payment tokens. Dated October 19, their correspondence expresses support for the Treasury’s initiative to regulate payment stablecoins, but it demands more precise definitions of digital asset service providers and advocates for limitations on liability associated with unauthorized issuances.
Concerns Over Compliance Requirements
The association raised concerns over the potential extension of compliance requirements to various businesses and blockchain network participants that do not engage directly with stablecoin issuers or their customers. The Treasury’s regulations, outlined in a proposal which operationalizes Section 3 of the GENIUS Act, are designed to govern who is permitted to issue, offer, or sell payment stablecoins in the U.S. Responses were solicited from the public until October 19, prior to the anticipated implementation of these regulations in January 2027.
Regulatory Treatment and Definitions
In its letter, the Blockchain Association contends that any final regulations should adhere closely to the statutory language enacted by Congress while simultaneously ensuring adequate protections for individuals holding stablecoins. Their concerns primarily focus on the regulatory treatment of ordinary transactions, the underlying software infrastructure, and the anonymity of counterparties on public blockchains.
One significant request from the Association is for the Treasury to delineate clearly which entities would qualify as digital asset service providers (DASPs) under the stablecoin regulations. The current legal framework encompasses entities that perform exchanges of digital assets, facilitate customer transfers, provide custody services, or engage in issuance-related activities. However, the GENIUS Act specifies that it does not apply to certain underlying blockchain protocols, self-custody solutions, or users engaged solely in validation tasks or defined peer-to-peer liquidity activities.
To address this, the Blockchain Association argues for maintaining a clear distinction between customer-oriented businesses and those managing their own assets. Without this clarity, it warns that proprietary trading firms or companies handling their own stablecoin stocks might inadvertently be subjected to regulations meant for intermediaries.
Decentralized Exchanges and Liability Concerns
The association highlights the importance of decentralized exchanges and permissionless decentralized systems, where users transact without transferring control of their assets to a centralized authority. It asserts that involvement in developing or operating foundational infrastructure should not automatically categorize an entity as a service provider.
Currently, the Treasury’s August draft does recognize some fundamental exemptions for direct transactions between individuals and operations involving self-custody wallets. The area of contention, however, lies in how these exemptions are interpreted when businesses engage with decentralized protocols or allied technical services.
The Blockchain Association further probes the implications of liability for third parties knowingly involved in unlawful stablecoin issuance. The GENIUS Act clearly prohibits unauthorized issuance in the U.S., establishing severe repercussions for individuals who knowingly assist in such violations, including fines of up to $1 million or imprisonment for five years.
The association insists that for liability to attach, there must be concrete knowledge of the unlawful issuance and a significant level of coordination with the issuer. It cautions that mere trading of stablecoin or supplying liquidity should not be classified as participation in the original issuance. They propose clarifying that establishing liability must consider the nature of the assistance provided, not just the timing of the stablecoin’s minting or transfer.
Market Roles and Foreign-Issued Stablecoins
In addition, the Blockchain Association highlights the various roles market players might occupy: a firm engaged in trading stablecoins for its own account is in a different position compared to one tasked by an issuer to distribute newly created tokens. They argue that market makers, who might gain direct access to minting capabilities, should be protected from criminal liability simply because they manage inventory through ordinary business transactions.
Amid these discussions, the topic of foreign-issued stablecoins surfaces again, with the Blockchain Association advocating for adjustments. The proposed Treasury rules would limit service providers from offering foreign stablecoins to U.S. customers unless certain regulatory conditions are met, such as adhering to lawful orders and undertaking oversight and registration with the appropriate authorities. The association argues that many platforms might lack the capacity to thoroughly investigate the compliance protocols of every foreign stablecoin issuer, especially when they lack direct contractual ties.
To mitigate these challenges, the group suggests that service providers be allowed to rely on official records from the Treasury and the Office of the Comptroller of the Currency as an efficient mechanism to determine compliance. This approach would prevent the imposition of a broad due diligence standard requiring platforms to independently verify a foreign issuer’s technical ability to meet U.S. legal standards.
Compliance Standards and Final Remarks
Additionally, the Blockchain Association is contesting the Treasury’s proposed criteria for identifying whether a recipient of stablecoins is located within the U.S. The draft suggests a ‘reasonably believes’ standard concerning transactions involving foreign issuers and digital asset service providers. The association raises concerns that standard compliance checks like those involving customer accounts may be impractical when dealing solely with public wallet addresses, which might not reveal a user’s legal identity, residency, or geographic location.
The association believes participants should not be obligated to create extensive identification systems for interactions within permissionless protocols that feature anonymous wallet engagements. Rather, participants maintaining existing customer relationships might already possess adequate location data through standard business procedures. Nevertheless, the group clarifies that its position does not absolve firms that intentionally bypass regulations while targeting U.S. users.
Treasury’s August proposal establishes staggered compliance timelines for the implementation of the GENIUS Act rules, with restrictions on foreign-issued stablecoins projected to come into effect with the law’s commencement in January 2027, while general restrictions on distribution are earmarked for July 2028. The proposed rules were published on August 18 in the Federal Register under docket number TREAS-DO-2026-0496, with the public comment phase concluding on October 19. Final details regarding regulatory changes are still pending Treasury’s response.
