A notable assessment has emerged regarding stablecoin regulations in the cryptocurrency sector. Bill Hughes, a renowned figure in law and regulation, stated that the joint regulatory draft prepared by the US Treasury Department’s FinCEN and OFAC units under the GENIUS Act could be one of the most important regulatory steps of the year.
According to Hughes, this regulation will not only shape the stablecoin market but could also set the basic standard for future US enforcement, anti-money laundering (AML), and compliance policies regarding cryptocurrencies. It was also suggested that this could influence how regulatory bodies like the SEC and CFTC approach crypto assets.
One of the most notable points in the draft regulation is the distinction between the primary and secondary markets. Hughes stated that FinCEN has adopted a “reasonable” approach to secondary market transactions, arguing that these transactions should not trigger customer verification (KYC), ongoing monitoring, or suspicious transaction reporting obligations. According to the assessment, regulators believe that such obligations would create a greater operational burden than the benefits they would provide.
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However, Hughes stated that OFAC’s approach is much stricter. According to the draft, issuers of payment-oriented stablecoins must have the capacity to block, freeze, and reject “prohibited” transactions in both primary and secondary markets. It also requires that individuals on the sanctions list be prevented from interacting with stablecoin smart contracts, including P2P transactions between self-custody wallets.
Hughes noted that this marks the first time in the crypto sector that a regulatory requirement directly addresses the technical structure of smart contracts. However, he added that there is uncertainty about exactly what the regulation mandates, stating that it is unclear whether stablecoin issuers will be required to proactively monitor and filter on-chain transactions.
If regulation mandates proactive oversight, stablecoin issuers could transform into permissioned network operators with complete control over their own tokens. According to Hughes, this could reignite debates about censorship and centralized control.
*This is not investment advice.