The Blockchain Association has formally submitted its recommendations regarding the proposed implementation of Section 3 of the GENIUS Act. In a detailed response to the U.S. Treasury, the industry advocacy group called for a more precise definition of digital asset service providers to prevent regulatory overreach. The submission emphasizes the need to protect decentralized infrastructure and provides a framework for stablecoin compliance that aligns with the technical realities of blockchain technology.
Defining Service Providers and Infrastructure
A primary concern raised by the Association involves the broad scope of the proposed rules. The organization argues that the Treasury must explicitly exclude non-custodial entities from the definition of "digital asset service providers." This includes:
- Self-custody software developers who do not control user funds.
- Network validators and node operators responsible for protocol security.
- Proprietary trading firms that only execute transactions using their own assets.
By narrowing these definitions, the Association aims to ensure that developers of open-source code and basic network participants are not burdened with compliance requirements intended for centralized financial intermediaries.
Stablecoin Oversight and Liability Standards
Regarding the regulation of stablecoins, the Blockchain Association proposed specific criteria for establishing criminal liability related to illegal issuances. The group maintains that liability should only be applied when there is actual knowledge of wrongdoing and substantial assistance provided in direct coordination with the issuer.
Furthermore, the submission addresses the complexities of offshore assets and permissionless protocols. The Association suggests that:
Trading platforms should determine the compliance of offshore stablecoins based on official issuer lists and established trading bans, rather than being held responsible for the independent verification of every global asset.
To address jurisdictional challenges, the organization also recommended adjusting the standards for user location determination within decentralized environments, acknowledging that traditional geographic tracking is often incompatible with the architecture of DeFi protocols.
The recommendations by the Blockchain Association arrive at a critical juncture as U.S. regulators seek to tighten oversight of the digital asset ecosystem. By advocating for these amendments, the Association seeks to balance the Treasury's security objectives with the need to maintain the operational integrity of distributed ledger technology and the privacy of individual users. The Treasury's final decision on these rules will likely have significant implications for the future of web3 development in the United States.
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