Paradigm Warns Treasury On GENIUS Act Stablecoin Rules
**Paradigm Urges U.S. Treasury to Adhere Strictly to GENIUS Act Without Overreach**
Leading blockchain investment firm Paradigm has submitted detailed comments to the U.S. Treasury, warning against any reinterpretation of the GENIUS Act beyond what Congress explicitly passed. In its response to the Treasury’s Advance Notice of Proposed Rulemaking (ANPRM), Paradigm emphasizes that affiliates of stablecoin issuers are legally allowed to pay yield to holders, and the Treasury should not close off this channel through rulemaking.
Justin Slaughter, Paradigm’s Head of Regulatory Affairs, noted that the ANPRM represents only the initial step in implementing the GENIUS Act, cautioning that subsequent regulatory stages often diverge from the law’s original text. Paradigm calls on the Treasury to respect congressional intent and avoid creating new restrictions through guidance or rules.
### Core Dispute: Can Affiliates Pay Yield?
At the heart of the debate is whether affiliates of stablecoin issuers can offer interest or yield to stablecoin holders. Congress has addressed this specifically by permitting affiliates to provide such returns while simultaneously prohibiting stablecoin issuers from paying yield directly.
Paradigm argues that the Treasury lacks the authority to reinterpret or override this clear congressional decision. However, the firm acknowledges that legal clarity alone may not prevent regulatory overreach. Experience shows that many bipartisan laws undergo significant transformation during their implementation, often straying from their original purpose.
Paradigm warns that any such deviation in this case would undermine both market fairness and consumer protection.
### Innovation and Competition at Stake
Allowing affiliates to pay yield is crucial, Paradigm explains, to maintain innovation and competition in the financial markets. Payment stablecoins act as digital equivalents of cash rather than traditional bank deposits. Granting affiliates the ability to offer interest would enhance benefits for users without threatening financial stability.
Moreover, this competitive pressure could incentivize traditional banks to improve their savings rates, which have remained relatively low despite broadly rising interest rates.
### Addressing Concerns Over Capital Flight
Fears that affiliate interest payments might trigger capital flight, Paradigm argues, are largely unfounded. Data from established stablecoin frameworks in Japan and the European Union reveal no evidence of deposit flight or financial disruption linked to these practices.
Accordingly, the firm insists that regulatory caution should be grounded in empirical evidence rather than speculative concerns.
### Stablecoins as Cash Equivalents
Paradigm’s submission also proposes that payment stablecoins be formally recognized as cash equivalents for retail and consumer transactions. The GENIUS Act already mandates strict 1:1 backing in cash or equivalent reserves, providing arguably greater security than many bank-held transaction accounts, which may lack comparable reserve requirements.
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Paradigm’s detailed response underscores the need for the Treasury to implement the GENIUS Act faithfully, preserving both innovation in stablecoin markets and protections for consumers and investors alike.
https://bitcoinethereumnews.com/tech/paradigm-warns-treasury-on-genius-act-stablecoin-rules/
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