Paradigm Warns Treasury On GENIUS Act Stablecoin Rules

• Paradigm filed comments warning the U.S. Treasury not to reinterpret the GENIUS Act beyond what Congress passed.
• The firm says affiliates of stablecoin issuers are allowed to pay yield and Treasury cannot close that channel in rulemaking.
• Paradigm also asked Treasury to recognize payment stablecoins as secure cash equivalents because of 1:1 backing.

Leading blockchain investment firm, Paradigm submitted a detailed response to the U.S. Treasury’s advance notice on the GENIUS Act and asked regulators to apply the statute exactly as Congress wrote it. 

Justin Slaughter, Paradigm’s head of regulatory affairs, said the Treasury’s Advance Notice of Proposed Rulemaking, ANPRM, is only the opening move in implementation and warned that later stages often drift away from the law’s text. The firm wants the Treasury to follow congressional intent, not create new limits through guidance. 

Core Dispute: Can Affiliates Pay Yield?

At the center of the debate lies a key question whether affiliates of stablecoin issuers can offer interest or yield to holders. Congress has already addressed this issue, allowing affiliates to provide such returns while prohibiting issuers from doing so directly. Paradigm argues that the Treasury has no authority to override this decision or reinterpret the statute.

However, the firm also acknowledges that legal clarity alone may not prevent regulatory overreach. History shows that many bipartisan laws undergo significant transformation during implementation, often straying from their original intent. Paradigm emphasizes that this time, such changes would undermine both market fairness and consumer protection.

Innovation And Competition Arguments

Allowing affiliates to pay yield, Paradigm explains, is essential for maintaining innovation and competition in financial markets. Payment stablecoins function as digital equivalents of cash rather than traditional deposits. 

Hence, letting affiliates offer interest would enhance user benefits without endangering financial stability. Moreover, such competition could push traditional banks to improve their own savings rates, which have lagged despite higher interest environments.

Related: Paradigm Capital Moves 3,718 ETH to Anchorage Digital as ETH Rallies

Fears of capital flight due to affiliate interest payments are largely unfounded, according to Paradigm. Data from established stablecoin frameworks in Japan and the European Union shows no evidence of deposit flight or financial disruption. Consequently, the firm argues that regulatory caution should be guided by evidence, not speculation.

Stablecoins as Cash Equivalents

Paradigm’s submission further proposes recognizing payment stablecoins as cash equivalents for retail and consumer transactions. The GENIUS Act already mandates strict 1:1 backing in cash or equivalents, offering more security than many bank-held transaction accounts that lack reserve requirements.

Related: Paradigm Lost 70% of its Clients in the FTX Crash. Now It’s Building its Own Exchange