A joint regulatory draft by the US Treasury's FinCEN and OFAC under the GENIUS Act is being hailed as potentially the most important crypto regulation development of the year. According to Bill Hughes, a prominent legal expert, the draft could establish foundational standards for US enforcement, anti-money laundering (AML), and compliance policies for digital assets.
One key aspect is the distinction between primary and secondary markets. FinCEN has taken a reasonable approach by not requiring customer verification (KYC), ongoing monitoring, or suspicious transaction reporting for secondary market transactions, arguing the operational burden would outweigh benefits.
However, OFAC's proposed rules are stricter. The draft mandates that stablecoin issuers must have the ability to block, freeze, and reject prohibited transactions in both primary and secondary markets. It further requires that sanctioned individuals be prevented from interacting with stablecoin smart contracts, including peer-to-peer transactions between self-custody wallets. This marks the first time a US regulator has directly addressed smart contract technical structures.
Hughes warned that if issuers are required to proactively monitor on-chain transactions, they could essentially become permissioned network operators with full control over tokens, reigniting debates around censorship and centralized control. The final shape of the regulation remains uncertain, but its implications for the crypto industry are profound.
